A Lesson on Locking in Losses: Remember Buy Low and Sell High (or Never)...

US REIT Index Fund-FSRVX 1 Year Performance

Towards the end of January I decided to rid myself of my REIT index fund, FSRVX, and exchange half of it for an Emerging Market Fund, FPMIX, and a Total International Market Fund, FSGDX.  At the time I rationalized that I had very little international exposure in my portfolio and I was tired of my REIT fund’s under performance-I believe it was down around 6% at the time I sold.  If I’m honest, I was probably chasing last year’s outstanding returns for international funds. The financial news media’s chatter about Amazon being the death of the American Mall, and thus Retail REITs, finally caused me to give in.  And of course, six months later my Emerging Market fund is down -7.7% YTD, my Total International Fund is down -4.8%, and the REIT I sold is up 1.2%.  So you see-I sold my REIT when it was down, locking in losses, and bought two international funds just as they were about to lose value.  

Emerging Market Index Fund - FPMIX 1 Year Performance

Total International Market Index Fund - FSGDX 1 Year Performance

Learn from my mistake-buying high and selling low is always a losing proposition.  Thankfully I’m pretty diversified in other assets that have helped to counter my mistake-my NASDAQ and small cap funds are doing pretty well YTD.

Investment Rules:
  1. Buy and Hold-I should have kept my REIT fund and put new money into emerging markets
  2. Never sell an underperforming, widely diversified index fund-eventually the market recovers and you just locked in your losses by selling.
  3. I could have bought the underperforming fund-buy low, high-buy when the market is on sale
  4. Never chase last year’s performance-I bought the international funds just after a huge run-up last year.  They'll eventually recover so I won’t compound my mistake by selling them at a loss-I’ll keep buying more shares now that they're discounted.


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