What does past performance does not guarantee future results mean?. Let us talk about this matter today at InvestmentTotal.com. In investing money, it is necessary to know the rate of your return on investment to know whether you are making good profits or not. ROI or the return on investment is important when investing. Would you invest your money in a high risk investment if it can only give your investments a low rate or return? Nope, right?
Knowing the rate of return is very important but the past performance cannot guarantee any investors that their money can make a profits or not. As the old saying goes, “time will tell”.
Because, there are instances or events or seasons that your money can make profits. If this month your money is earning an interest rate of 10%, by next month maybe 8% or lower or 10% again or higher.
There are many reasons why does past performance does not guarantee future results, and here they are;
- Risk – every investment has corresponded risks.
- Industry – if you belong to a falling industry
- Investment Vehicle – which vehicle you are select? Maybe bonds will be great today while stock market is down. But what happen to your savings and bonds when the stock market rises.
- Market – think about the supply and demand.
So, if you think the past performance is the basis of choosing the right investment vehicle, you’re probably wrong. You must be knowledgeable in selecting a good investment.
Whether you’re an investor or an investment company, you need to agree that “past performance does not guarantee future results”, US Securities and Exchange Commission, remind investment company who offers mutual fund products, it stated…
“…SEC requires funds to tell investors that a fund’s past performance does not necessarily predict future results.”(1) See References
If you’re not familiar on how to analyze a profitable investment, go somewhere else and hire an investment advisor or CFP – a certified financial planner. In my own experience, I sometimes look for the past 5 years to 10 years performance of a particular stocks and mutual fund companies.
Daniel Solin wrote in Money.USNews.com, past performance won’t protect your investments. (2)See References I agree with Mr. Colin, I feel guilty because when I first invested money in mutual funds, I usually check out which mutual fund companies is the best and which funds are the top performing.
Interesting Quote from Daniel Solin...
“Don’t wait for the government to protect you from a disclaimer that fails to provide the information you need to make an informed decision. Past performance really is irrelevant.” (2) See References
References:(1) U.S. Securities and Exchange Commission , (2) Past Performance Won’t Protect Your Investments
Related: Asset Allocation by Age and Risk Tolerance
Share your thought! What do think about this topic? Do you also usually looking for the past performance of stocks or company and make it the basis for your investment decision? Kindly share it in the comment box. Spread this financial knowledge with your friends and neighbors!