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Withdrawing cash from investment: take money from underperforming fund?
It looks like the advice the rep is giving is based primarily on the sunk cost fallacy; advice based on a fallacy is poor advice. Bob has recognised this trap and is explicitly avoiding it. It is possible that the advice that the rep is trying to give is that Fund #1 is presently undervalued but, if so, that is a good investment irrespective if Bob has lost money there before or even if he has ever had funds in it.