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Money Matters – Mutual Funds: When To Sell

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420x316-grad-lee Dee Lee
Dee Lee is a Certified Financial Planner who received a diploma in...
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BOSTON (CBS) – All investors need to have a sell strategy as well as a buy strategy.

[Audio http://cbsboston.files.wordpress.com/2011/01/january-6-2010-money-matters.mp3|titles=When To Sell|artists=Dee Lee]

Most do not. Do not sell simply because your mutual funds are up for the year. What was your goal for the money? When do you need your money?

Kenny Rogers says it best “you gotta know when to hold ‘em and know when to fold ‘em”.

The number one reason to sell is when your goals or objectives are met and you need the dollars to pay for the goal. And with some planning you don’t do this the day before you need to pay the bill for your daughter’s college tuition.

As you are getting closer to reaching your goals you should be thinking about changing the asset allocation of the investment.

For example your daughter is just finishing her freshmen year in high school so college is only three years away. Any new contributions to the college savings should remain in cash and maybe it’s a good idea to begin to shift some of the stock investments into cash over the next couple of years so you have at least the first and maybe the second year’s tuition available.

Another example you are 55 and want to retire in 10 years or so. You are pretty much invested in stock mutual funds right now and your 401 (k) still hasn’t fully recovered. All of your current retirement contributions should go into the bonds, cash equivalent or the stable fund choices.

You are diversifying your portfolio and in ten years you could have a balanced portfolio that would serve you well in retirement. And it may take another 5 or more years for the stock mutual funds to return to the values of 2007.

Another reason to sell your mutual fund is if it is under performing the benchmarks and its peers. You can cut it a little slack here. Compare those one year, 3 year and 5 year performance numbers. If it doesn’t make it, cut it from the portfolio.

Consider selling if there are legal problems with the mutual fund company or your particular mutual fund or the fund managers. The SEC is trying to protect investors and make them aware of problems but only you can pull your money out of the funds.

Morningstar reports will also help here by listing the manager’s education and experience in their next update on the fund. Also utilize www.fundalarm.com for research on funds. They don’t tell you when to buy mutual funds but when to sell a mutual fund.

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