How Actively or Passively Should I Manage My Equity Fund?

How Actively or Passively Should I Manage My Equity Fund?  This is something I struggle with myself. And I think every new investor in an equity fund also struggles with this too at some point.  Should you actively manage your equity fund? It's a profitable strategy; but it really depends on your execution.
This is something I struggle with myself. And I think every new investor in an equity fund also struggles with this too at some point.

And someone asked me about this in the comment section. And I've read this in forums too. What if I sell my UITF/MF when it reaches a high and then buy back when it falls to a low? Is this a good strategy?

Yes, that's a profitable strategy; but it really depends on your execution.

In theory, this is pretty much how we should invest. If you have the time, patience and discipline to study financial reports, charts, keep up with the latest news and other relevant info; then it can be very profitable - or at least more profitable than simple buy-and-hold or cost-averaging.

It is very difficult to know when the peak and bottom is, though. Paid, full-time professionals can't accurately predict them, so it's realistic to say average joes like us probably can't either.

Of course, that doesn't  mean we stick with our equity funds and just leave it to the pros. They aren't necessarily making decisions to make sure you get the amount you need when you need it.

But instead of profit-taking (buying high, selling low; rinse and repeat), it maybe better to switch to a better-performing fund.

But you can't just keep switching funds either. Especially for mutual funds where entry and exit fees are a factor. But even without those fees (like in UITFs), it isn't an easy strategy. The best fund for the year is usually not the fund that was best last year. So if we switch based on past performance, then it's practically guesswork.

Unless we do so over the long-term.

Over a period of a few years, there's enough time for the fund manager's strategy to play out. There would be enough "body of work" to tell if they "hit" more than they "miss".

And if the returns over that time fit your goals, then there's no need to switch. And that's the thing really. For long-term goals (i.e. retirement or maybe college tuition), you need to let things play out a little bit before switching to a better performing fund.

Not because the need is far away. But because you may be stressing yourself out now, but in the end your actions may not really make a significant difference.

But if the goal is relatively short-term (down-payment for a house or car in a couple of years, tuition either next year or the next, etc.) then you need to be quite active.

That could mean profit-taking or switching funds. Or even "cashing out" early so to speak.

Definitely if the fund isn't meeting your goals, switch to a better one. Previously you might have allowed it some time to make up for it. But if your target date is near, you'll have to actively look for better options. Especially if the market is doing good and it's just the fund that is lagging.

If it's meeting your goal/expectations, you could also practice profit-taking, to soften the impact of potential market downturns. Just redeem a small amount or percentage after a good/bullish run and place it somewhere safe.

Of course, by doing this you are also minimizing potential earnings. So this makes sense only towards the end, when you are near your target date or target amount.

You could also buy on dips, but be wary if you are near your goal. A large dip isn't necessarily followed by a large run up. It could very well be followed by another large dip; there's really no way to tell.

And if you've achieved your goal, my best advice is to redeem your investment and place it somewhere safe. You could possible let it continue and earn "extra". But since equity funds are inherently risky, you might end up "losing" and not meeting your goal in the end.

So do yourself a favor and bask in your investment success. Then just start another one for another goal and get excited all over again.


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