Why Would I Change Mutual Funds?

Tray asks how often Dave watches his mutual funds and changes them based on performance. Dave loves this question.

QUESTION: Tray on Twitter asks how often Dave watches his mutual funds and changes them based on performance. Dave loves this question.

ANSWER: I believe so strongly in having bought a good track record with a fund that I only look at them about once a year. If I’m curious about something or I hear something in particular about an individual fund, I may pull it up twice a year. I’ve got some software from Morningstar, and it’s got every mutual fund on it in the database, and I’ll pull up the stats on it. It updates quarterly. If I get that disc in and I pop it in, update the database and I’m curious about something I thought about or I read about somewhere, I’ll pull it up and look at it. But the truth is I don’t study them that often. The reason is I buy them to hold. I don’t move on every little whim.

When would I change a mutual fund? Let’s say I have an aggressive growth stock mutual fund, and I look up and the thing is down 15% that year. Would I change? Maybe. Maybe not. I would only change if the other aggressive growth stock mutual funds had substantially outperformed that one. Maybe the market is way down. If the market’s way down, my aggressive growth stock mutual fund might be down 15%, and all the other aggressive growth stock mutual funds might be down 17% or 18%. I would’ve been stupid to change. I got the right fund. It did what it was supposed to do. It’s following the market and isn’t down as much as other things are down.

You compare it to other funds of that category. That’s what I look at. I look at it within the category how it’s doing. If some fund is just way underperforming the category, then I’ll move funds. I almost never move a fund. I really do just buy them and keep them. I watch it, but I’m doing a good enough job selecting reasonably good funds to great funds that they’re staying up with or beating their respective categories so I don’t need to move them.