Financial Planning

• As the goal of an investment approaches, investors should move toward more conservative investments. For example, many investors use mutual funds to save for retirement. In the five years or so before retirement, an investor should begin to shift the money from a mutual fund to a more stable investment such as a bond or bond fund. An investor may also decide that his investment portfolio is too conservative or too risky and need to sell the fund to make changes to his overall investment holdings.
  
  

Poor Performance

• If over a period of years a mutual fund has began to decline in performance against other similar mutual funds, it may be time for the investor to sell the fund and reallocate the money into a new investment. Many financial reporting services provide information on mutual fund performance by category. For example, if over the last 10 years, small cap mutual funds are up 10 percent but an investor's particular small cap fund is only up 1 percent, this may be an indication that the investor should sell the fund and move the money into a new investment.
  
  

Fund Changes

• When funds change managers, the returns of the investment may change. Investors should watch a fund's performance cautiously after a change in management and be ready to sell the fund if returns begin to decline. Of course, a fund manager change may improve the return of a fund, especially one that has been struggling. Another concern for investors is when a fund announces an increase in fees. If a fund increases fees, investors may want to look for similar funds with a lower expense ratio.
  
  

Tax Issues

• Though selling a fund based on taxes alone may not be a wise decision, an investor who has other reasons to sell may consider the tax implications as part of the decision. An investor who has a mutual fund that has lost money may sell the fund to reduce the taxes caused by investment gains in other areas. Or conversely, an investor may sell a fund that has performed well in a year when the investor also has investment losses. Impending tax code changes might be another reason to sell. If the federal or state tax rate for capital gains is set to increase, an investor might want to sell and pay a lower tax rate before the rate change takes effect.