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What should I do if I own a poorly performing fund?
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It can be downright upsetting to see one of your funds trailing the field--especially if your neighbor's gloating about his latest Internet stock. But before you decide to bail on your fund, make sure you're doing so for the right reasons.
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Sometimes a fund does poorly because its manager's approach to investing is just not clicking with the current trends in the market. A manager who sticks with his game plan is often justified in the long run, though, and you wouldn't be happy if you gave up on the fund only to see it catch fire later on.
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But there are some good reasons to consider selling a slumping fund:
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It's important to make sure you look at your fund's weak returns side by side with funds that pursue similar strategies. So, for example, compare funds that invest in small, fast-growing companies with funds that do the same; otherwise you're comparing apples and oranges.
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If your fund no longer does what you bought it for--say the manager went from buying large, safe stocks to tiny Internet startups--then you have a genuine gripe.
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Some funds, especially those that buy smaller stocks, get weighed down with too much money as more and more investors buy in, and this can eventually hurt their performance.
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Whatever the reasons for lousy returns, also consider your personal tolerance level--after all, you're the one who has to sleep at night. And if your investment is not in a tax-qualified account like a 401(k), you'll also need to consider the tax implications of selling the fund.
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