5 Reasons You Should Sell an Investment

It's often hard for investors to decide when to part ways with a fund. Some people become attached to the investments they've owned for a long time. Others keep waiting for a poor-performing investment to make a comeback. And some hold on to a fund without realizing it has changed.

Here are five reasons to review the funds you're investing in and determine if it's time to make a break:

1. Prolonged Weak Performance Over a Full Market Cycle

   Any fund can occasionally underperform, but that doesn’t automatically mean it’s time to abandon it. The problem, for example, could be that the fund's investment style is temporarily out of favor.  Compare the fund’s performance to its benchmark and peers to determine if the weak performance is specific to that fund or to the investment style. If the fund consistently underperforms its benchmark and peers post gains, that could be a sign to cut it loose. Remember, benchmarks and peers may have different levels of fees, so add fund fees for a fair comparison.

2. Fund Manager Changes

   A top manager of the fund’s investment portfolio leaving the fund doesn't mean you should bolt, too. But you should keep an eye on the fund as the new fund manager tweaks — or overhauls — the fund strategy or objectives to make sure you're still happy with your investment. In fact, some seemingly lackluster funds have revived under new management.  If the new fund manager changes the fund's strategy so it no longer fits with the strategy for your portfolio, it may be time for you to make a change, too.

3. Increase in Fund Size

   Sometimes a fund can outgrow its success. A high performer can be flooded with so much new investor money that it becomes difficult to manage the fund or to find enough good investments to buy. Performance may then suffer. Some funds try to protect against this “asset bloat” by closing to new investors. Or a fund could revise its focus, which may not be the type of investment your portfolio needs. Some funds use multiple subadvisors to avoid this problem. When a fund grows, a new subadvisor may be brought on board.

4. Fund Style Drifts

   It's possible, over time, that a fund has shifted its style. For example, your small-cap fund could seem to lean toward mid-cap stocks or your fund's value focus could appear to be veering toward growth.  You may have to ditch the fund if it throws off your asset allocation. Or if you still like the fund, you can keep it, but consider adding another fund to get your asset allocation back to what you want.

5. New Portfolio Focus

   Maybe you bought that aggressive growth fund just as you were starting to accumulate assets. But now, as you near retirement, you want a fund that's less volatile and generates more income. Your fund lineup may need to be readjusted as your financial goals change.