Once you own a fund , how can you tell when it's time to sell ?? The standard advice is to ditch a fund if it underperform the market or similar portfolios for one or is it two ?? or is it three ?? years in a row . But this advice makes no sense .
The performance of most funds falters simply because the type of stocks they prefer temporarily goes out of favor . If you hired a manager to invest in a particular way , why fire him for doing what he promised ?? By selling when a style of investing is out of fashion , you not only lock in a loss but lock yourself out of the all-but-inevitable recovery .
So when should you sell ?? Here a few definite red flags :
- A sharp and unexpected change in strategy , such as a value fund loading up on technology stocks or a growth fund buying tons of insurance stocks
- An increase in expenses , suggesting that the managers are lining their own pockets
- Large and frequent tax bills generated by excessive trading
- Suddenly erratic returns , as when a formerly conservative fund generates a big loss or even produces a giant gain .
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