1. Should I even own speculative investments in the first place?You've probably heard that you shouldn't invest your money in the stock market unless you have at least five years to keep it there. The idea is that you have enough time to make back any money you might lose. But when it comes to particularly aggressive investments -- say tech or biotech funds -- you've got to give yourself even more time than that. Think 10 years or more.
Investors need to consider taxes. The IRS offers you four options to determine cost basis.
The Hartford Capital Appreciation fund skipper is light on tech, but he does see some winners.
2. Is this fund run by a decent manager or a talentless sucker who fell for every half-baked, new economy idea?Since Radio Shack ( RSH) doesn't sell an idiot-meter, you'll have to rely on a fund's performance to tell you whether a manager knows what he's doing. This exercise certainly isn't perfect. The average tech fund is down more than 42% in the last year alone. But the returns can tell you something about the amount of risk a fund is taking and give you some idea of how many now-worthless companies in which the manager invested your money. First look at how a fund has performed relative to its peers and an appropriate benchmark -- like the Nasdaq rather than the S&P 500 if it's a tech fund. The idea is to find a fund that ranks in the top half of its category in good markets and bad. If your fund is alarmingly below its category average over the past three years, you should sell it. It's not worth hanging on to if its three- and five-year performance ranks in the bottom 25% of its peer group. And yes, some funds have done that badly. Just take a look at ( NTTFX) Hancock Technology or ( BFOCX) Berkshire Focus . A fund's standard deviation (a measure of its own volatility) is one way to judge how risky a fund is compared to its peers and even the overall market. You can also get rid of a fund that's down more than 90% from its peak. That kind of plunge tells you that the vast majority of the manager's picks are now worthless or close to it. That's inexcusable. Every stock didn't go to zero. There are still eBays ( EBAY) out there.