If you're new to investing, the thought of buying and selling mutual funds may be a little scary. Dealing with investment tools like stocks and bonds can be very confusing and you're starting out without any strategy whatsoever. And if you're like most people, your knowledge of stocks and bonds is probably limited, so your ability to know when to buy or sell a mutual fund may be out of your league. While every fund manager has their own strategy for buying or selling these funds there are a few fundamental rules that they all follow. When you have the right key to buying and selling mutual funds the whole prospect won't be so unnerving.
How to Know When to Buy
Since none of us know what will happen in the future, without the key to buying and selling mutual funds it will be difficult to master the ability to choose a fund that will perform well in a year, 10 years, or 20 years from now. So, you'll have to carefully study the funds' past performance for indications that it will continue to perform well in the future. When you analyze the performance you want to measure its long-term track record, at least over a period of five years, this will give you a pretty good idea of its stability over time. You also want to compare it to the performance of other similar funds and their track record over the same period of time.
How to Know When to Sell
When it comes to investing, a fund will naturally have highs and lows. The key to buying and selling mutual funds is not to act impulsively. If you sell the first time you see a dip in its performance you might as well stay out of the game. One dip in performance is not an indicator that the fund is in trouble or is failing. Even one year of low performance doesn't mean all is lost. So, how can you tell when it's time to throw in the towel? There are three different things you should look for.
When you compare the fund to other similar funds and it is consistently falling behind in performance it might be time for you to rethink your investment, especially if it is behind by a significant margin.
You may also want to think about dumping your fund if the investment manager has not changed his strategy with the market. Mutual fund managers should be able to adapt their strategy to the existing market, but if nothing has changed and the fund is still performing poorly, there is little hope that it will change in the future.
And finally, if your account is a taxable fund and you could claim the loss then you might want to sell. So, if you've invested in a fund and today it is worth less than what you paid for them, you could sell them at the lower price and claim the loss to lower your tax bill.
Investing in mutual funds can be challenging for the new investor but with even the basic knowledge of the industry you can still make wise decisions about your investment and you'll find the key to buying and selling mutual funds that will work best for you.