I have two tech funds that have dropped 72% since I bought them. Should I hold on or am I beating a dead horse?

QUESTION: I have two technology funds with $12,000 invested. Combined, they are down about 72%. I feel I should just hold on to them, since they are so low. Am I beating a dead horse?

ANSWER: If we knew for certain the answer to these questions our staff would be retired somewhere in the Caribbean rather than sweating it out in Manhattan. But deciding whether or not to bail out of a mutual fund should indeed be an analytical decision, rather than an emotional one. Here are the things you need to consider.

"The first thing we tell investors to do is to avoid the tendency to sell at a terrific loss if you don't have to," says Michelle Smith, managing director of the Mutual Fund Education Alliance, or MFEA. Selling, after all, locks in your loss, while the only loss you have right now is on paper. With a bit of patience, your fund could very well turn around and give you the gains you hoped for.

If you're satisfied with the overall asset allocation and risk level of your portfolio, you nonetheless need to regularly review your fund picks — especially when one starts to perform poorly, says Norman Boone, certified financial planner and president of San Francisco-based Boone Financial Advisors. "Assuming you bought the fund for good reasons, (ask yourself) have those reasons changed?" suggests Boone. Things to examine include whether there's a new manager at the helm or whether the investment style has shifted. You should also check to see if the fees have increased dramatically.

No matter what, you need to keep performance in perspective. Remember, you should judge a fund's performance over several time periods compared to its peers — not the broader market. That means you should judge a tech fund against the performance of the average tech fund, as well as its appropriate index, which usually is the Nasdaq.

Assuming both of your tech funds are running with the pack and "you believe in technology for the future, it can still be a sensible investment for you," says Peter Di Teresa, senior analyst at fund-tracking firm Morningstar. But this may be a reminder to you that you may not want to commit too much of your portfolio to a specific sector, he warns.

You should also consider your possible sale from a tax perspective. Remember, the sale of mutual-fund shares is a taxable event. At times, selling at a loss can give you a nice tax break if you are looking to offset some capital gains. What you don't want, obviously, is to "get out at a loss — or a small gain — and end up paying more to Uncle Sam," warns Ramy Shaalan, senior fund analyst at fund tracker Wiesenberger. (For more on how you could still have a tax liability when selling at a loss, see our previous Fund FAQ.) And often there are other costs to consider, like redemption fees and back-end loads that "kick you on the way out the door," says the MFEA's Smith.

Finally, if you decide you need to redeem because you can't take it anymore, Morningstar's Di Teresa says you should be confident that you'll never buy that fund — or a similar fund — in the future, because it's just another form of buying high and selling low. If you sell your tech fund now because it's tanking, you don't want to purchase it when tech funds come back — and are more expensive. "They say people tend not to remember pain," he says. "In this case, you need to remember it."

One idea is to keep an investment journal, jotting down the reasons for buying a fund, including its role in your portfolio. This can help you down the line, especially if you end up questioning your actions. Says Di Teresa: "If your notes consist of, 'This fund made a ton of money last year,' you're buying for the wrong reason."