When your refrigerator reeks of rotten food, you know it's time to clean it out. Unfortunately, bad money management is odorless.

But you still need a strategy for dumping decaying funds.

From brokers to financial advisers and money managers, people who work in the financial-services business often preach the same sermon: Think long term and hold a fund for three to five years. You want to avoid chasing performance and selling a fund at the very bottom of a broad-market downturn. But you don't have to hang on to a fund that's collapsed over the past year or two. In fact, there are plenty of good reasons to dump a fund. Here's a handy checklist:

Performance Plummets

If you own a fund with a three- and five-year performance in the bottom 25% of its category, get rid of it. But you don't have to wait that long.

True, the market and almost every stock-fund category have been in the red for the past year. But check how a fund stacks up against its peers. If your fund is alarmingly below its category average over the past year or two, you should sell it. (Jim Cramer thinks

you should pull the trigger even quicker.)

Selling a technology fund just because it's down over the past two years doesn't make sense. But if it's fallen a lot more than other tech funds, then it deserves a good dumping. One example of many: the


Amerindo Internet B2B fund. If the words Internet B2B don't frighten you, then this fund's performance should send you running to another, more diversified technology fund. Its one-year performance ranks in the bottom 2% of all tech funds, and it has made only a modest comeback in the past three months.

Indeed, a fund's upside performance is just as important as how it does on the downside. Small-cap value stocks have been jumping during the past year. The average small-cap value fund has climbed 11.9% during the past 12 months. You should be able to spot a laggard with no problem. If a small-value fund hasn't been able to ride this rally, you may want to get rid of it.

And you won't be chasing performance if you find another fund of a similar style to replace the one that you're selling. The key: Don't trade growth for value after growth has done badly and value has done well. If you're unhappy with the


Janus Twenty fund, for example, you should find another growth fund to replace it.

Unexpected Indigestion and Nervousness

After the past two years, you should now know if you can live, eat and sleep with the amount of risk you're taking in your portfolio. If you can't cope with the swings in those aggressive growth funds you bought in late '90s, then get rid of them.

Take the


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Van Wagoner Emerging Growth fund. This fund was up 87.8% in the fourth quarter of last year, but that's after it fell 60% in the third quarter. (Of course, this fund also has fallen 61.8% over the past year, which should scare almost anybody.) If that volatility is too much for your nerves, then you should find a more stable growth fund that won't make you reach for the Tums.

Use Those Losses

Anyone who bought a bunch of funds at the peak of the market is probably sitting on some hefty losses. Thankfully, you can use them to your advantage. If you've lost money in a fund, you can sell it and realize the loss to offset any taxable gains you might have made in other investments.

If you want to stay in a certain style or sector, you can buy a similar fund without triggering the "wash-sale" rule. (This rule prevents you from claiming a loss on the sale of an investment if that same investment was purchased within 30 days before or after the sale date.)

Talent Drain

The departure of a fund's manager should make you nervous. But the conventional wisdom has always been to wait to see what happens to performance under the new chief.

If you've got your money in funds run by a firm like


, then that logic still applies. This firm has shown a willingness to replace a manager whose performance isn't solid, and backs its funds with a vast research department.

But with other, usually smaller firms, you don't need to wait, particularly if you already have a loss in the fund. You can sell if the manager leaves and watch the performance from the sidelines. Why stay in the fund if your money is at stake?

Too Much of a Good -- or Bad -- Thing

Is the word "growth" in the name of most of the funds you own? If it is, then you've probably got some funds to sell. For example, if you own both

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Fidelity Magellan and an

S&P 500

index fund, you might think about getting rid of one.

Remember: You aren't diversifying by buying different funds that follow the same style. They will move in the same direction at the same time. That's great when they're all going up, but disastrous when they're all going down. Right now, you may own too many value funds, which have had an incredible run over the past couple of years. A portfolio should have about an even mix between growth and value. After all, balance is the key.

In keeping with TSC's editorial policy, Dagen McDowell doesn't own or short individual stocks, nor does she invest in hedge funds or other private investment partnerships. Dagen welcomes your questions and comments, and invites you to send them to

Dagen McDowell.