Some ideas to help you decide whether to sell fund shares

The Ticker

October 09, 1998|By Julius Westheimer

In this mostly down market, many people wonder if they should sell their mutual funds.

"Continuing poor performance of your fund relative to a relevant benchmark is the No. 1 reason for selling a fund," says Albert J. Fredman, finance professor at California State University, Fullerton. "A simple way to determine which benchmark to use is to check your fund's prospectus or annual report to find out what the fund compares its performance against."

Other reasons to sell a fund, according to the American Institute of Individual Investors, include frequent management changes, rising expense ratios which hurt performance and shrinking assets which cause sizable redemptions and dumping of good stocks to raise cash.

Also, a major strategy change could be a "sell" signal, says the institute's newsletter. "A small-cap value fund might overnight become a mid-cap growth fund -- quite a difference -- and if the new strategy doesn't mesh with your original objectives, it's time to cash out."

Are there advantages of "dollar-cost averaging" in this market? "When the market falls and a stock's price per share goes down," says financial writer Steven Camp, "your monthly investment buys more shares than when the market is up. Over time, as the market rises again, those extra shares increased your portfolio's value. If you were willing to pay $8 a share, why wouldn't you pay $2 and get more shares for the same money?"

WALL STREET WATCH: "When stocks begin to rise as an exercise in levitation rather than as a result of earnings growth, it is time to cut back." (Rex Rehfeld, Gruntal & Co., Baltimore.)

"Forty percent of all domestic stocks are now down 50 percent from their 12-month highs." (David Dreman, money manager.)

"We see the Dow dropping to 6,885, despite 'relief rallies.' And bonds won't be a safe haven during a bear market. Bonds will weaken later this year." (High Tech Growth Forecaster.)

Pub Date: 10/09/98

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