"Of Mutual Interest" With Financial Planner Scott Kahan of Financial Asset Management Corp.
Tuesday, July 17, 2007SUSIE GHARIB: Most people consider themselves buy and hold investors. But financial planners say some people hold on way too long. Experts say there are red flags that should make you rethink your holdings. Erica Miller has more in our continuing series "Of Mutual Interest."
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: They say breaking up is hard to do. What's true in romance can also apply to mutual fund investing. Financial planner Scott Kahan says many people miss important warning signs to dump their shares.
SCOTT KAHAN, FINANCIAL PLANNER, FINANCIAL ASSET MANAGEMENT CORP.: The first main reason to sell a mutual fund would be under performance of the fund. Looking at how the fund has done against its peers, indexes for comparison and has it underperformed. That would be a red flag to think about selling the fund or look more deeply into it.
MILLER: On the other hand, unusually strong performance can also be a reason to part ways. Lipper mutual fund analyst Jeff Tjornehoj says when that happens, it's sometimes a sign the fund has changed its style.
JEFF TJORNEHOJ, MUTUAL FUND ANALYST, LIPPER: You may have a value fund that seems to be far outperforming its peer group. And it turns out that it's owning a lot of growth stocks in it. For the watchful investor, that would be an occasion to at least raise a red flag to ask yourself, is this still the same investment that I bought it for?
MILLER: You may also want to consider selling holdings if there is a change in your personal situation. For example, as you near retirement, experts typically advise switching into more conservative investments.
TJORNEHOJ: As that deadline approaches, you need to scale back on the risk. And that generally means taking more in bonds and less in equities. So just keep in mind that those bond fund allocations are there to tide you over as you get closer to your goal.
MILLER: Advisors say another reason to rethink a holding is a change in fund managers to someone without a proven track record. A big jump in the size of a fund can also be cause for concern, especially if the fund is heavily weighted in small caps.
KAHAN: As the fund gets too large, what's going to happen is they are going to start to shift money into maybe midcap stocks. And that small cap fund now has what they call style drift. And all of a sudden it has shifted and it's drifted away from what you think it is.
MILLER: There's one common mistake that many investors make, selling impulsively. Financial planners say it's important to make sure that you unload your shares for well thought out reasons, not emotion. Erika Miller, NIGHTLY BUSINESS REPORT, New York.
