Don’t Fall for This Misleading Investment Sales Pitch
It’s often just smoke and mirrors
An easy way to make lousy investments is to put a high degree of faith in irrelevant data points.
One of the most irrelevant data points that investors use to drive their investment decisions is past returns.
If you’ve ever been pitched an investment opportunity, the primary selling feature was likely the (seemingly) impressive past returns of that investment.
In this article, you’ll learn why “past returns” are a useless data point to rely on for investing your money and how it leads even experienced investors to make very foolish decisions with their money.
Past returns make sales, low fees make money
There is no investment product where comparing past returns is as meaningless as when looking for an index fund to invest in.
If two companies offer an index fund that mirrors the performance of the S&P 500, you shouldn’t even bother comparing the past performance of each fund. Both funds do the exact same thing and should provide nearly identical returns.
Imagine you are picking between two S&P 500 index funds:
- Fund 1 has annual returns of 37.7% since inception.
