Maybe it’s time to sell that mutual fund

It’s the most difficult decision you might ever have to make as an investor, and we’re talking about knowing when to sell. Like real estate, timing is all of the essence and your idea to shuffle things around and say “adios” at the right time could be the difference between you being uber-successful or an average Joe. There will lots of thoughts swirling in your mind prior to your selling, such as the obvious “what if I sell and it suddenly skyrockets?” Sure, you’ll be out of lots of theoretical money in that case, but what if it suddenly goes into free fall and you’re faced with a giant, yawning black hole where your money once was? Isn’t prudence the better part of valor sometimes?

Mutual funds can be very dicey that way; many people just go with the flow without ever looking to switch out, content in the knowledge that there is a mutual fund manager overseeing things for them. It is always a good idea to be a bit paranoid and constantly check out your mutual funds every now and then to see how they’re performing, or if they’re performing at all. Some of my mutual funds like to play dead like my dog, which is when I try and poke them back into life or throw them out onto the street. There are times when it is a great idea to get rid of that mutual fund, and we list out four of those possible situations.

Poor management

Every mutual fund is only as good as the manager it has. If your fund has a rotating door with managers coming and going or if the incumbent manager doesn’t seem like he has his act together, it’s a good idea to bail. No one is right all the time, but if you feel the manager has lost the plot then you should get the hell out of there. This is your money we’re talking about, after all. Keep an eye out for long drawn out records of poor performance.

Diversify

You should always have as diverse a portfolio as you possibly can and if you’ve not really looked into your initial investment decisions, it is quite possible that you’ve not spread your risk around. Take a quick look at your mutual funds and check to see if there is any degree of overlap at all. If there isn’t, you’ve got a problem and you should try and diversify across asset classes and other investment vehicles as far as possible. Hunt down mutual funds with diversity you can identify with and balance your portfolio out.

Profit whenever you can

Perhaps you invested in that mutual fund with a reason in mind or because it was just a great deal with potential for growth. If you’ve met or exceeded those targets and are now profitable, it might be time to sell. This is particularly true of volatile investments or mutual funds where you’re not sure if the earning potential that currently exists is viable. If that is the case, take your money out and move on to something else that does fit in with your aims and ambitions.

Tax purposes

If your mutual fund is a long-term one in a taxable account, perhaps a good strategy would be to sell it at a loss so as to offset whatever other gains you might have made. Crunch the numbers and talk to a professional (unless you’re one yourself) and figure out if you’re better off selling. Pull out that cash and reinvest it somewhere else, maybe even add it to your retirement fund.