Sell the Laggards? Maybe, Maybe Not
It's OK to admit it: The stock market's been on a tear, but your money's been in a "clunker" fund that doesn't seem to know a stock from a stink bomb.
Thanks to good times on Wall Street, these clunkers can seem rather rare these days, but it's not unusual to face a tough decision: whether to sell a laggard fund or give it just one more year.
The key, analysts say, is a systematic look at your portfolio. That means not selling a fund out of anger over a bad quarter, or holding one because of emotional attachment, despite persistent underperformance.
Selling is often easier said than done, says mutual-fund expert Sheldon Jacobs, who publishes the No-Load Fund Investor, a newsletter in Irvington-on-Hudson, N.Y. People get attached to their holdings or just don't know when to pull the trigger on a poorly managed fund.
But the decision to sell can be almost as important as the decision to buy. That's because, over time, small differences in your rate of return can turn into big differences in the value of your account.
Fund experts say it's time to sell a fund when:
* It repeatedly lags behind its peers.
* Its manager has left, and the new manager can't seem to duplicate his predecessor's success.
* It has switched to an investment style that no longer makes sense for you. Example: when a "mid-cap" fund, investing in mid-size companies, becomes a large-cap fund, and you already own a large-cap fund.
* It is in a sector that has dropped out of favor for a substantial period of time. Example: gold funds.