My late father was the guy who first showed me the merits of this practical portfolio test.

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Your Funds

If the mutual-fund world was a meritocracy, at least half of all funds would disappear tomorrow.

In the investment world, however, mediocre and terrible funds can go on for decades, never blowing up a portfolio but quietly disappointing indefinitely.

While the investment world allows laggards to hang around, you don’t have to. Your portfolio should be a meritocracy.

With that in mind, here is an interesting question that most investors never ask themselves:

What is the worst investment I own today?

This is not about the horror story you created by buying an internet fund in the 1990s before the bubble burst, or about the beating you took by being 100 percent in equities when the financial crisis hit in 2008 or about any other loser in your past.

Even in the best of portfolios, something has to qualify as the worst investment and examining your portfolio to find the weakest link can go a long way to helping improve your holdings and make choices about managing your money.

My late father was the guy who first showed me the merits of this practical portfolio test. When he reached the age where minimum distributions were required from his Individual Retirement Accounts, he asked me to size up his holdings, specifically looking to see which fund was the worst.

“Worst,” of course, is a word with many definitions when it comes to funds. It could be sized up based on straight performance, or it could be the fund that has the lowest grade from a ratings agency like Morningstar. In my dad’s case, he wanted to know which fund I had the least confidence and interest in, the fund I never would have bought myself or that I might have wished he didn’t own.

His thinking was simple: Withdraw the required money from the worst fund and keep the best ones working for you.

It worked because he had a good portfolio, where his worst fund was still a good one, something he only would sell because he had to. It also worked because his portfolio was well-diversified, so that slowly removing one position (it generally took a couple of years before the distributions exhausted a holding) didn’t leave his portfolio off-balance.

But I frequently hear from readers who have portfolios where they still hold a fallen angel — a former star that has come to hard times — or yesterday’s grand idea or gimmick that turned out to be today’s laggard in the portfolio.

The logic in holding these funds tends to boil down to “It was good to me once,” “I don’t want to pay the taxes on my past gains,” or “It still seems like a good idea.”

None of those is a good reason to hang onto a laggard; to see why, let’s take them on one at a time.

• “It was good to me once.”

If you heard this on a daytime talk show, it would be said about an abusive relationship, and that’s the way investors should look at it.

A fund has a job to do for you; if it stops doing that job — and shows no signs of being capable of doing it again in the future — you have no reason to own it.

Fund managers are like field-goal kickers, only as good as what they do next. If you can’t trust a manager to make the next kick, you can’t truly believe they will win the big game, so give them the boot.

• “I don’t want to pay the taxes on past gains.”

No one likes giving Uncle Sam his due, but investors can’t let taxes have much impact on the front end of investment decisions. If a fund has gains but has proved itself to be mediocre, or worse, over time, the taxes due are a small price to pay for moving on to something better.

Use the taxes as a gatekeeper, a flow-check if you will, to slow things down, to force you to do the math to know that you can actually expect to get more (after taxes) from making a change than by standing pat, and move only when the numbers indeed make sense, but don’t let the proverbial tax tail wag the dog.

• “It still seems like a good idea.”

Investors generally have a reason to own a fund, or a thesis behind what they have picked. Say you want or need emerging-markets exposure in your portfolio or you believe that health care is the place to invest for the next few decades and want to juice your portfolio with a sector fund.

Both could be good reasons to invest, but you don’t have to stick with a laggard. If the emerging-markets fund you picked years ago has failed to keep pace with the sector — or the health-care fund you own isn’t taking care of you — it has stopped doing its job. At that point, change should be easy.

Ultimately, the point of this exercise is that you want a portfolio where it is hard to decide which fund is worst, where you would feel a sense of loss if the fund shut down tomorrow and you had to invest elsewhere, rather than a sense of relief at being forced to move your money.

If you can have that kind of peace of mind with the worst of your mutual funds, you undoubtedly have it with the best, meaning you have a great portfolio.

If dropping your worst fund would feel like an upgrade, it’s time for a change.