If a fund doesn’t perform well over the long haul, or if it’s not a good fit for your overall strategy, it may be time to drop that fund from your investing portfolio. Here are some signs to look for when deciding whether to drop a mutual fund. As always, it’s best to talk this decision over with your financial advisor.
1. The expense ratio is too high.
Though you should never choose a mutual fund based on its expense ratio alone, understanding a fund’s expenses is important. Every penny you pay toward expenses and fees is money that’s not in your investment—and it’s not moving you closer to your retirement goals.
2. There’s too much turnover.
When a fund has a high turnover rate (the percentage of the fund’s holdings that are bought and sold each year) it can lead to big fees and costly taxes for funds outside of a retirement account. It also shows that the management team might be trying to time the market for a bigger return.
3. Your portfolio is out of balance.
Over time, as the market fluctuates and shares are bought and sold, your portfolio is bound to change. This may mean you no longer have 25% of your investment in each of the four categories. To get back on track with your strategy, your investment professional can rebalance your funds. This typically happens a minimum of once a year. Remember, balance is the key.