When to sell?
This is often a difficult decision to make. What if you sold and the price went up further? What if you don't sell and the price falls? We have created three simple rules of thumb for you to follow:
Pre-determining your goal
For every mutual fund that you buy, set yourself a goal for the kind of returns that you want to see on it and the time frame. Say you decide on 15% for 1 year.
If you reach this target within the year, do a review. Is there more room for growth? If you think so, set another goal. Maybe you'll up the original 15% to 20%. But if you think that the upside is limited, then you may want to sell and look for another investment opportunity.
Setting a goal allows you to be focused and disciplined. If you go with a 'see-how-it-goes' attitude, it is harder to plan for specific returns.
Sometimes after you sell, the mutual fund may appreciate even more. You have to learn to 'let that go' emotionally! Tell yourself that you have already made your intended returns, and that at the point of selling your diligent research pointed towards selling.
That's the best you can do. There is absolutely no scientific way of knowing that the mutual fund will appreciate further.
When a fund continually underperforms its peers
Sometimes you may see your mutual fund depreciate in value and you feel disheartened. You have to ask yourself these questions:
- Is the fund manager still amongst the best in the sector?
- Is the long term future of the sector good?
If you have a long term investment horizon, and the answer to both the above questions is yes, you might want to sit tight and do nothing. Volatility in the market is to be expected.
However, if you start to doubt that your fund manager is doing his job, and discover that the fund is consistently performing poorer than other similar funds, then it might be time to re-examine your holdings. You might want to take your losses, sell out and choose another investment.
When market conditions change drastically
If you have a short term investment goal, you might want to sell in the event of a major change in that sector that you have invested in. For example, acts of God like earthquakes, or political changes, could cause previously promising sectors to lapse into bad situations for a very long time.
If you have the time, you might ride it out. But if you don't, it might be better to shift your investment focus. Come back to Fundsupermart.com often to read about expert's views and analysis of sector conditions.
When the fund doesn't do what you thought it would
Certain funds give their fund managers tremendous latitude in allocating the funds across sectors and asset classes. You might have bought into a fund because of its current strategy. However, as its strategy changes over time, you might find that it doesn't fit with your investment goals any more. You might want to move your investments elsewhere.
What NOT to do
Do not stay with a fund blindly. This is your money and so you should keep an eye on it. You would want to be sure that the fund is staying its course, that its fund managers are still the best in town, and that the sectors which you have invested have a good future. There are many fund companies which have fallen by the wayside. You don't want to have money with those. They might have been very promising companies for several years, but through mismanagement or key personnel's departure, their results suffered and never recovered.
It might be painful to take losses. And you might think that if you do not sell, then your loss is only 'paper loss' and not real. If you have invested with a bad fund manager, the losses are very real, and not selling it now simply means that you would have to take an even greater loss in the future.
Next : Rules to live by