A simple rebalancing strategy is a good idea for buy-and-hold investors with a long-term plan. The idea behind rebalancing is to skim off some profits from your best-performing funds and reinvest the proceeds into laggards, perhaps once a year. This helps to keep your original allocation on track while providing you with an automatic "buy low, sell high" discipline. Sometimes, however, you will want to sever your ties to a particular fund. What might prompt you to sell? Common red flags include poor performance, a change in managers, rising expenses, a surge in portfolio assets or alterations in your personal circumstances that can render certain funds less suitable.

Of these, it can be especially tricky to determine poor performance. Among advisors, there's no consensus about how much time you should give a fund before bailing.

But it is essential that you base your decision on relative, not absolute, returns. In other words, you shouldn't unload your foreign-stock fund just because it's losing money, especially if rival funds are stumbling too. But if your choice has been lagging the competition for at least a year or so, it might be time to get out, especially if some of the other warning signs are apparent.