IS PAST PERFORMANCE HELPFUL IN CHOOSING INVESTMENT FUNDS

So far in 2017, large company stocks in the U.S. are up approximately 9%. While that is a nice return for just short of six months, overseas stock markets have performed even better. The developed international markets (i.e. Europe, Japan, Australia, Canada etc.) and the emerging overseas markets (Brazil, China, India etc.) are both up about 14%^1,2.

We don’t ever know when markets will turn. It takes discipline not to react to short term trends and chase whatever has done well in the past, but unfortunately that is what most investors do.

If past performance led us to find the best place to invest, we would all be great investors.

Unfortunately, past performance is not indicative of future performance and can actually be dangerous to your financial success. A recent study³ looked at the top performing funds (defined as the top performing 25% of all mutual funds) for multiple five year periods i.e. starting from 2002-2007, 2003-2008 etc., all the way to 2011-2016. They then measured how these funds performed in the year following that five year period of outperformance. Not one of these funds was even in the top half of mutual funds in the following year, in fact they averaged being in the bottom 25% the following year. So if investing by looking in the rear view mirror is no more successful than driving while looking backwards, what does work?

The answer is that nothing works perfectly all the time, but there are strategies that do increase your odds of success. We employ those strategies on your behalf in the portfolios that we manage for you.

We focus on eliminating as many of the risks as possible for which you are not compensated. Risks such as guessing when to invest, guessing as to what handful of stocks are going to do best, guessing which firm or individual (and then paying them) to make those guesses for us are all examples of unnecessary risks.

Employing a disciplined strategy based on evidence can be frustrating at times, but it beats a strategy based on hope. We all want to hear someone promise us the upside of the market while also promising to protect us from the downside. And as long as there are people selling this hope, there will be people willing to pay them for it.

Knowing what increases and decreases our clients’ probability for good investment performance is essential to helping you meet your financial goals.

Thanks for your trust and confidence in us.

Hope you have a great summer!

Beach

References:
1. FTSE Developed ex North America Index
2. FTSE Emerging Index
3. Dimensional Fund Advisors Mutual Fund Landscape 2017
Views expressed are not necessarily those of Raymond James & Associates and are subject to change without notice. Information contained herein was received from sources believed to be reliable, but accuracy is not guaranteed. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts mentioned will occur. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. Please keep in mind that diversification does not ensure a profit or protect against a loss. There is no assurance that the objectives of the portfolio will be reached. All investing involves risk and you may incur a profit or loss regardless of strategy selected. Raymond James & Associates, Inc., Member New York Stock Exchange/SIPC