Investing Advice

Cashing in Your Fund

One of the hardest things to resist is the temptation to give up on your mutual fund because of a poor year, or even a few bad months. You watch the value of your fund drop 15 or 20%; while you see others gain 25%. It seems logical to switch to the hot one.

Over half of new mutual fund investors in 1997-2000 cashed in their shares when the markets fell, suffering a big loss. After all, mutual funds are supposed to make you money, not lose it.

If they had picked a good, conservative fund and just hung in there, these investors would have gained back all their money and more. In fact, when the fund share price was down, it was a buying opportunity to take advantage of dollar cost averaging.

If your strategy is to jump to another fund every time you have a bad year, then you are buying high and selling low - great strategy!

However, if your fund really is a dud and you probably bought it for the wrong reasons, sell it fast. Don't kid yourself that you are diversified if your money is in sector funds. This is a good way to maximize your losses when an industry suddenly hits hard times.

But if you do have some sector fund investments, don't bury your head in the sand. Except with an index fund, a buy and hold strategy is not buy and forget about it. You need to pay attention.

Mutual funds should be a long term investment. Buy a good one based on the advice you find here in this book, then add money to it on a regular basis, and don't watch it day to day or even month to month. A properly chosen fund will not disappoint you. It will make you rich.

Here are some examples of what happens when you jump to the “Hot Fund”

Van Wagoner Emerging Growth made 291% in 1999
 It looks great, so you jump in - then 
Lose 12% in 2000
Lose 43% in 2001
Nevis Fund made 286% in 1999, then
Lost 24% in 2000
Lost 32% in 2001
MAS Small-cap Growth made 313% in 1999, then
Lost 24% in 2000
Lost 31% in 2001
Warburg Pincus Japan made 330% in 1999, then
Lost 63% in 2000
Lost 16% in 2001
Munder NetNet made 98% in 1999, and 175% in 2000
Then hundred’s of millions of dollars poured into the fund. Shocked Investors had lost over 50% by mid 2001 when management made the wise decision to close the fund.

I could give you many, many more examples.

Chasing one of last year’s best funds, is like choosing last week’s lotto numbers.

Other Stock Market Basics Topics:

  1. Mutual Fund Advantages
  2. History of Mutual Funds
  3. NAV
  4. Dollar Cost Averaging
  5. General advice about choosing a fund
  6. Mutual Fund Ratings
  7. Evaluating Mutual Fund Investment Risk
  8. Mutual Fund Share Classes
  9. Mutual Fund Fees
  10. The Mutual Fund Prospectus
  11. How important is the manager's length of experience?
  12. Why is the prospectus hard to understand?
  13. Mutual Fund Annual Report
  14. Comparing your fund to the competition
  15. Comparing funds on an after-tax basis
  16. Average Return on Investment
  17. How Not to Pick a Mutual Fund
  18. Cashing in Your Fund
  19. When to Sell Your Fund
  20. Mutual Funds and Asset Allocation
  21. When to get started with a mutual fund
  22. Types of Mutual Funds
  23. Value Stock Funds
  24. Growth Stock Funds
  25. Small and Micro-cap Stocks
  26. Mid Cap
  27. Large Cap Companies
  28. Income Stock Funds
  29. Mutual Fund Index
  30. Enhanced Index Funds
  31. Sector Mutual Funds
  32. Stock Market Sectors
  33. Defensive Stocks
  34. International Funds
  35. Real Estate Mutual Funds
  36. Socially Responsible Funds
  37. Balanced Funds
  38. Tax-Efficient Funds
  39. Bond Convertible Funds
  40. Junk Bond Funds
  41. Mixtures of stock types
  42. Closed End Funds
  43. Exchange Traded Funds (ETF’s)
  44. Stock Picking Strategy - Picking your own stocks?
  45. Fund names, and what they really invest in
  46. How to get started
  47. Where can I start investing with no money?

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