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4 Ways to Effectively Manage Your Fund Portfolio

Nearly 100 million Americans, almost a third of the U.S. population, own mutual funds. Funds allow investors to have their money managed by some of best money managers and research teams in the world, and they give investors the ability to participate in nearly any market sector or geographic region. 

But creating and managing a portfolio of funds can be challenging at times. With thousands of funds available, investors have to decide what funds to buy and also when to sell them. They have to consider potential trading fees and tax consequences, and they may need to adapt their approach depending on the size of their accounts. 

Here at FundX, we’ve been managing fund portfolios since 1969, and over the years, we’ve found that there are a few key ways that investors can better manage their fund portfolios, such as:

1. Plan to Take Action 

Many investors tell us that even when they know what to do, they have trouble taking action. They know what funds they want to own, but they’ll spend months, or even years, waiting for the ‘right’ time to buy in. Or they have funds that they want to sell, but they continue holding the funds because selling them would feel like they’d made a mistake. 

We’ve found that investors are more likely to take action if they have a clear plan in place. Write down how you plan to get invested or change your fund portfolios, and then calendar out when you’ll make these changes. By deciding in advance what action you need to take and writing it out so you can refer to it later, you may be more likely to follow through, even as markets change. 

2. Manage the Impact of Trading Costs

Trading funds often comes at a cost. Most investors trade funds at a broker, and brokers tend to have some funds that are available without a transaction fee (these are called ‘NTF funds'), while other funds come with a transaction fee (‘fee funds’). 

Transaction fees can be substantial, particularly for investors who are managing smaller accounts. Consider that if you invested $500,000 in a fund with a transaction fee of $75, the transaction fee would be a tiny fraction of your overall investment. But if you invested just $7,000 in a fund with a $75 transaction fee, you’d have paid over 1% before the fund made a dime for you. 

Some funds charge investors a redemption fee if investors sell their shares within a certain period of time (often 90 or 180 days) and brokers often have their own short-term trading policy. These can also eat into returns.  

Before you place a trade, check to see if a fund has a transaction fee, and make sure you know how long you’ll need to hold the fund to avoid redemption fees, too. 

3. Be Alert to Tax Consequences

Investors who hold funds in taxable accounts should keep in mind the potential tax consequences of their trades. You will pay taxes on any capital gains realized when selling a fund, so you’ll want to keep track of how long you’ve held a fund before you sell it. Since losses can be used to offset gains, you may need to consider whether it would be advantageous to sell a fund at a loss.

You’ll also need to trade carefully at year-end when many stock funds distribute capital gains and income to shareholders. Most funds make estimates available starting in November and you can use these estimates to avoid buying into a fund that’s about to make a large distribution. 

4. Take Care of Your Smaller Accounts

Many investors have more than one account. You might have a retirement account through your employer as well as your own Roth IRA, for example. It’s easy to focus on your largest account, since that’s where you own the bulk of your investments, but don’t neglect your small accounts.

You may need to adapt your approach to suit the size of your account. For example, if you have a smaller account, you’ll want to be particularly mindful of trading fees. We often suggest that investors who have smaller accounts try to avoid transaction-fee funds, and instead focus on NTF or no-transaction-fee funds. 

Since most funds require a minimum investment of $1,000 to $5,000, you may find it challenging to own enough funds to truly diversify your exposure to both stock and bond funds. You may need to focus on core positions and avoid potentially riskier stock and bond funds. 

Simplify Your Investing with FundX Upgrader Funds

The FundX Upgrader Funds are designed to help fund investors.

No Need to Take Action–We Do It for You

With the Upgrader Funds, you don’t need to spend time deciding what funds to buy or sell. We use our Upgrading strategy to invest in the funds that we believe are excelling in the current market environment.

Trim Your Trading Costs

We manage the Upgrader Fund portfolios for you. Our team of dedicated traders considers whether a fund has a transaction fee or not and manages redemption fees. The Upgrader Funds themselves are usually available without transaction fees. The Funds also do not have redemption fees.

Simplified Tax Reporting

Investors in the Upgrader Funds have fewer taxable transactions to report on April 15. If you own just the Upgrader Funds, you only have to consider the Funds' once-a-year distributions of capital gains or income.

Designed for Smaller Accounts

We launched the FundX Upgrader Fund in 2001 as a solution for investors with smaller accounts. Our clients often had smaller accounts they wanted us to manage, but these accounts often weren’t as diversified as their larger accounts. The FundX Upgrader Funds allowed investors to own a portfolio of funds for just $2,500 ($1,000 for IRAs). 

The Funds also can make it easy for investors to own both stock and bond funds. Investors can create a balanced account by investing in one of the equity Upgrader Funds, like FUNDX, and the Flexible Income Fund (INCMX), which invests primarily in bond funds. Or an investor could get exposure to both stock and bonds funds through the Conservative Upgrader Fund (RELAX) or Flexible Total Return Fund (TOTLX). Both RELAX and TOTLX invest in both stock and bond funds. 

Nothing contained on this communication constitutes tax, legal, or investment advice. Investors must consult their tax advisor or legal counsel for advice and information concerning their particular situation. Diversification does not assure a profit or protect against loss in a declining market.​

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