For stocks, be sure to compare your company's return to direct competitors and its overall sector.
For funds, compare its annual returns against an appropriate benchmark, such as its category peers or a related index. For example, the performance of a large-cap growth fund may be compared to that of the Standard & Poor's 500.
It may seem counterintuitive, but it's also a good time to consider reducing your exposure to an investment if it's posting unusually high returns, says Ryan Leggio, a mutual fund analyst with Morningstar.
"If an investor is only in it for the great return, they'll probably end up selling at the wrong time -- when there's a temporary downturn in the fund," he says. "Also, as we saw with emerging markets last year, when you get returns far in excess of what you'd expect that company or fund to achieve, you might be in bubble territory."
Rather than dumping it entirely, however, consider scaling back your exposure by selling an amount necessary to rebalance your asset allocation, since high fliers eventually overweigh your portfolio towards a single asset class.
Check new managementNew management is another reason to review your investment choice.
A new chief executive may have different plans for a company's product lines or growth opportunities, which could affect the value of your stock down the road, while new fund managers may employ a different investment strategy altogether.
If you start seeing large cap growth stocks in the top five holdings of your small cap value fund, it's time to reconsider its place in your portfolio.
"The difference between good management and bad management is night and day," says Leggio. "The new manager may not have as much experience as the one who left, or they may have a different investment philosophy, so even though the name of the fund is still the same you may not own the same fund you used to own."
Sleep easyLastly, says Leggio, it's time to bid farewell to a stock or fund if its volatility is keeping you up at night.
"That's a huge concern right now," he says. "Shareholders who can't stand the volatility end up selling after a period of underperformance, usually right before it snaps back."
Case in point: The ING Russia fund (LETRX). The highly volatile fund, which posted a 71 percent gain in 2005 and a 72 percent loss in 2008, turned in a 10-year annualized return of nearly 22 percent through June 30, 2009, according to Morningstar. Overall, an impressive long-term return, but few investors could take the heat.
According to Morningstar, over the same 10-year period, the annualized investor return for that fund (which measures how much investors actually earned) was just 14 percent.
"Although it performed well over the last decade, it was hard for many investors to stomach all the dramatic up and down swings," says Leggio. "That means many investors bought high and sold low."
Stick to a systemAs many investors learn the hard way, it's easier to buy a stock than to sell.
If the recent market meltdown has taught us anything, though, it's that all investors (the buy-and-hold crowd included) need to establish a system to mitigate downside risk.
"The most important thing is to not let your gut get in the way," says Leggio. "Have a plan (for determining when to sell your investments) written down, review it with your financial planner and stick to it through times of volatility."