Four Questions to Ask Before You Switch Funds
Wall Street firms often make it easy to move money from one fund to another. In fact, dubious innovations such as the Fidelity Select line of industry-focused funds were explicitly designed to encourage investors to trade mutual funds. But active fund trading generally adds to hidden costs and market timing errors, detracting from performance rather than adding to it. Just as you look for low turnover in a fund, you should also aim to keep the core of your family portfolio as stable as possible. Sometimes it can make sense to sell a fund, particularly one that’s very high cost, but ask yourself these four questions first:
Do I expect the new fund to do as well or better over the next 10 years, or am I just chasing this year’s hot trend?
Does the switch change the overall balance of my family’s portfolio and does this make sense?
How much will it cost me (in capital gains taxes, redemption fees, commissions) to sell my old fund and buy the new one?
How much money will I save if I switch funds, and how quickly will I earn back the costs of switching?
Want a little help sorting out fund selection choices? Financial coaching can make the difference between fund changes that really make and save you money, and changes that just create more headaches. Schedule an appointment today.
The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Past results are not indicative of future performance. Outside sources used in this article are believed but not guaranteed to be accurate. Examples provided are for illustrative purposes only and are not representative of intended results that a client should expect to achieve.