Despite the hours of research you may have conducted on your mutual fund investment strategy, there is no guarantee that you will make money on the investment. There may be certain occasions where selling your shares earlier than originally planned may prove to be advantageous.
Some reasons you may opt to cash out your mutual funds early then you initially planned are:
- Asset Reallocation – As stated in all the prospectus literature, “past performance is not a accurate indicator of future performance,” true of any mutual fund. If a mutual fund is decreasing in areas where you expected growth and growing where you expected loss, it may be time to sell and work on re-balancing your funds.
- Staffing Changes – Perhaps you bought into a particular mutual fund as you had great faith in the fund manager, however she has moved on and you are not sure about the skills of the fund manager. In this case, you have the right to move too!
- Climbing the Financial Ladder – As you grow and develop as an investor, you may find that your original investment strategy into mutual funds no longer suits your needs. At a certain point, the funds can be cashed out and the money can be used for other investments that better suit your developing needs and skill sets.
- Correcting a Mistake – Determining the perfect balance of your portfolio can be challenging and sometimes over-diversification may happen. With too many investments, it may be hard to track all the changes you need to. By selling a mutual fund you can condense and consolidate using newly freed financial resources.
- Save on Your Tax Bill – If you actually have the “problem” of earning too much money in a year and want to offset your tax bill, mutual funds in a taxable account can be sold to get capital losses to offset your capital gains.
Before making any decision to sell your mutual funds investments earlier than expected, it is imperative you weigh the fiscal impact of your decision. There may be costly fees associated with the transaction and your income taxes may be impacted in a way that you did not previously anticipate.