The right yardstick for measuring a mutual fund

I have a balanced mutual fund that has been underperforming the S&P 500 index for a while now. Should I dump it?

Not based on that comparison. Balanced funds contain a mixture of equities and bonds, not just stocks in the S&P 500. Instead, compare your fund's relative risk-adjusted performance to that of other balanced funds. You can find those figures at http://www.morningstar.com. Click on Total Returns in your fund's listing, and under Performance History look for "% Rank in Category." Check to see which performance quartile your fund falls into. If it's in the bottom quartile-meaning it ranks higher than 75-and has been for more than a year, it's probably time to sell it.