The best reason to sell a fund is the same best reason for buying it — your investment plans. Even the best performing fund can and should end up on the selling block if it does not meet your investment needs any longer. Just as you should make your buying decisions based on how the fund in question can contribute to your long-term financial goals, your selling decisions should be made with the same ideas in mind.

In addition to the main driving factor — your overall financial plan — many other factors can tell you that it's time to sell a fund. Sell reasons can include a fund's unsuitability for your portfolio (which can happen due to style drift of the fund, for example), poor performance, a change in the fund's holdings, a change in fund management, or inefficient service from the fund family. Taxes can provide another motive for selling a fund: Taking a loss on a fund and switching to another may allow the government to share in your loss through an income tax deduction.

You should also sell a fund that is performing poorly because it isn't sticking to any real style. Keep your eyes open when you look at your funds. Are they still doing what they said they would do? If not, you should sell, and you should also question whether the investment concept you bought into is worth buying into again.

And, equally important, there's the ulcer factor. You may want or need to get rid of a fund when you just can't take its ups and downs anymore. The aim of investing is to hit your key financial goals, not develop ulcers. If a fund in your portfolio is so volatile that not even the prospect of spending your profits on a dream vacation in Hawaii can keep you from reaching for the antacids, it's time to sell. Be positive you will never again buy that particular fund.