Sell funds like stocks?

Zoomer | January 1st, 2006

Question: When purchasing a mutual fund should I pay attention to the present price relative to its price history? Should I buy low and sell high like a stock? – R.F.

Answer:

No. Mutual funds don’t operate like stocks and past price history means nothing, although the performance record does. The price (meaning the current net asset value) can be deceiving because distributions will reduce the NAV. For example, if a fund was priced at $10 and made a distribution of $1 on Dec. 31, the NAV on Jan. 2 would show up as $9. It looks like the fund has lost value, but of course it hasn’t. It has just passed out some of the value to unitholders.

That said, buy low and sell high is a good strategy for any investment. So when fund prices are low, say because of a stock market drop, it’s a good time to average down. – G.P.