When should you sell investment funds and when not?

However, it is not always easy for a non-expert to know when it is best to resell investment funds in order to be able to invest in others. We looked at the advice of independent investment institute Morningstar.

When are you selling better?

1. Long-term underperformance

After a long period of poor performance, it is evident to consider a sale. Morningstar cites as an example a fund that has failed to beat the stock market index for three years or is consistently at the bottom of the peer-to-peer category.

2. Long-lasting excellent performance

Despite the corona crisis, there are indeed many investment funds that performed well in the past year. It may seem contradictory, but it is sometimes advisable to (partly) sell strong performing funds and to invest the released money in other promising investment funds. The reason: past success is not a permanent guarantee of future success, and it is important to keep spreading your risk.

3. A modified strategy

Depending on age and financial situation, both savings and investments can be interpreted differently. Suppose you are in your fifties/sixties with a large savings buffer, then you may be able to afford more risky choices. You could then switch from a defensive investment fund to more dynamic investment products.

4. What about inherited investment funds?

A family member bequeathed you an investment fund, while you are shunning all risk or the fund not in line with your ethical beliefs? Then you better go to the checkout.

5. Modified Funds

Just as the presence of Elon Musk at Tesla or Jeff Bezos at Amazon helps determine the stock price, investment funds also have key figures. When a top manager leaves a fund, it may affect performance. Although only the dyed-in-the-wool investor will correctly assess the consequences of that decision.

When are you better selling not?

1. Because of short-term results

Emotions are a bad counselor on the stock market. Due to the corona crisis, stock prices are swinging in all directions. After an almost unprecedented drop in March, the index managed to level off much of the losses in the spring and summer. Anyone who sold in March has probably already complained. So you often do well to stay in control of your emotions.

2. With macroeconomic news

The interest rate policy of the European Central Bank, the news about Brexit or the economic growth in China are causing significant stock market fluctuations. If you let it lead you to sell, Morningstar says you’ve missed the boat – and a high return – because fund managers have probably already anticipated those trends.

3. Due to inconsistent performance

Few investment funds present good results from January to December. Well-managed funds implement their investment strategy in a sustainable manner and do not falter, even if the market does not reward them in the short term. So take fluctuations into account and look at the picture in the longer term.

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