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Why I Don’t Look at “Performance History” In Mutual Funds

Posted By Jim On 09/25/2012 @ 7:01 am In Investing | 10 Comments

Here’s the funny thing about writing a personal finance blog for 8+ years – you can easily unintentionally start “plagiarizing” yourself (without the deceptive part). I read this article [3] on Reuters (it’s dated February 2012) and was going to title this post “Past returns are not indicative of future results [4]” (an homage to the little disclaimer at the bottom of every investment document) when I realized that I already wrote a post with that title!

As it turns out, any three year return number is going to look insanely good. The Vanguard Total Stock Market Index Fund (which I own some) is going to be up 30% annually from March 6, 2009. Looking at it today, it’s been tempered a bit – only up 13.86%. Back when Reuters did the article, if you were to look at it six months earlier, the 3 year trailing performance is just 0.91%. That’s a huge difference.

It’s why I rarely look at performance history. It’s also important to note that I usually buy index funds (or total market funds) and so really I just want the fund’s performance to match the index. I know that as the index changes the fund will lag (even given announcements) so it won’t match perfectly. I just want it to be pretty close.

Do you look at performance history and does it play a role in your decision making?


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[3] article: http://www.reuters.com/article/2012/02/09/us-column-personalfinance-idUSTRE8181G320120209

[4] Past returns are not indicative of future results: http://www.bargaineering.com/articles/past-returns-are-not-indicative-of-future-results.html

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