On The Money

The (un)reliability of past performance: Tim Byrne, director of private wealth management research, products and services, and Aaron Reynolds, senior portfolio analyst, at Robert W. Baird & Co. Inc.

Depending on what you want it to tell you, past performance can be either reliable or very unreliable. If you’re making investment decisions with the assumption that recent performance will continue, the measure is dangerously unreliable – as recent market volatility has demonstrated.

Yet, studying past performance can be a valuable exercise from the standpoint that reversion to the mean is a powerful dynamic, and the examination of past performance – especially over a longer period, spanning various market cycles – can help investors avoid costly mistakes. To read more, click here.

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