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Fund Spy

Five Popular Mutual Funds That Must Shape Up or Ship Out

Time's running out for these veterans.

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In the grand scheme of portfolio management, there are plenty of questions. What asset allocation will get me to my financial goals? How much risk can I tolerate? Which mutual funds should I buy?

But of all the questions, particularly those related to mutual funds, one stands out as being especially tough: When is it time to sell a disappointing fund? In some cases, the answer may be obvious--say, you took on more risk than you could handle or something sinister happened and you no longer trust the fund company.

More typical, though, are questions that involve a gray area--when performance just hasn't stood out over a reasonable period of time. Moreover, what if the underachiever is one of your core holdings, you've owned it for years, and you have potentially large taxable gains? Further complicating the matter are often-promising moves by the fund company, such as a manager change or a short-term performance burst, that make you hopeful that a turnaround is in the works.

Bridget B. Hughes does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.