How Much Should You Care About Past Performance? Our Experts Weigh In
Past returns can be useful in assessing the effectiveness of a fund manager or strategy, but they must be put in context, according to Morningstar experts.
How do you use fund performance data? Every investor has his own opinion on the topic, from those who obsess about every basis point when poring over return statistics to those who ignore past performance entirely.
Of course, there's no right or wrong answer. How one uses performance data is a matter of personal preference. But some investors make the mistake of looking at past performance alone when making investing decisions, and it's easy to understand why. Trailing-return data, for example, is easier to understand and takes a lot less time to research than a fund manager's strategy and process. Furthermore, performance data speak directly to what many investors care about most: how investing in a fund might be able to help their money grow. And despite all the disclaimers about past performance not necessarily representing future results, some investors have a hard time resisting the data.