Buying Mutual Funds by Past Results

Buying managed mutual funds by past results is a fools’ game for any number of valid reasons.

Research has shown that past performance over previous years will have no effect on future results of a typical fund. Aside from these empirical performance findings, there are basic reasons why the past records are not helpful.

Managers of funds come and go, so that there are few who consistently are in charge of a fund’s direction. There are usually group efforts involved; the teams are always fluid in nature.

Managed funds invariably do not do as well as the indexes they tend to follow. Managers who outperform indexes in any one year are often inconsistent in their efforts in following years.

The only certainty you have of future mutual fund performance is to invest in those with lower costs, who invest in market indexes.