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Five Steps Before You Sell Step one in determining your selling strategy is to take a look at your buying strategy. Re-examining your motives for your original purchase is good place to start. Did you buy into that fund because you were young and could assume a high level of risk, older and sought balance, or were you anxious to make up for lost time? If you bought the fund after extensive research you should not be looking at selling if the fund has lagged the new top dog. Instead, allow the fund to settle into the top 5-10% of its peer group. If it is a large cap fund, compare its performance to other large cap funds. This is often better than using the fund's best comparison numbers. Step two in your selling strategy is determined by the markets themselves. Rarely does a market or the sectors within the market stay down for prolonged periods of time. Recently we have seen a rally in the markets that has been across the board. Declines generally act in much the same manner, broadly taking the markets down. If you have a broad exposure to the markets and are avoiding sector funds in favor of funds that might specialize in company size rather than type, a move downward should be considered a buying opportunity. If you are dollar cost averaging, down markets can be very profitable over a long period of time. If your fund has changed course on you though, this is more than adequate reason to sell without waiting. After examining why you bought the fund and whether your investment is broad based, the next step, Step three deals with the wait. How long do you wait for a fund whose value is seriously below what you paid for it to sell it? If you have a horizon of more than ten years, and provided the fund and its fundamental objectives haven't changed, you have not provided sound reasons for taking the loss and moving on. Shorter horizons should have you re-examining the first two steps more closely. If you had planned on adding to the fund after you bought it, then these down times will be good times... eventually. If you paid into the fund with a sizable lump sum, and your horizon is long, you might as well wait. Step four is much more topical. Suppose the news tells you about a certain New York State Attorney General who has uncovered some underhanded doings at your mutual fund. Suppose you assumed that the playing field was even. Do you sell on this news? Two fund families were named in the original complaint both of which I have investments with and have for quite some time. Janus has, to their credit, told shareholders the will make full restitution although that amount has yet to be determined. This appeases me but doesn't solve the underlying problem of why fund families would betray the very folks that invest in their skills. Might be greed, I suppose. Step five assumes that you have created a diversified portfolio of funds, a method of investing that protects your overall investment much better than betting it all on one idea. This is something we should all have learned well from the relatively recent market debacle. If you have, selling becomes based on fundamentals and management. It is really true that managers make the difference. Management teams are less volatile when only one member exits. Outside management firms are even less problematic. If the fund manager leaves, it is vitally important that you give the new head of the fund some time to develop their strategy. Then decide if what they are doing is right for you. There will always be lists of what to do and what not to do in the financial world. The best indicator is your comfort level. It is difficult to determine but not impossible. |