Just yesterday, I came across this post on Free Money Finance (one of my favorite personal finance/investing blogs). It’s an interview with the editor of a service that ranks Fidelity’s funds for you. At the end, the editor offered this choice wisdom:
[Our] system is based on four basic principles: 1) concentrate on Fidelity Investments Select mutual funds, 2) stay 100% invested, 3) monitor the performance of potential funds and move regularly to better performing funds, and 4) stay diversified. [Emphasis added.]
Regularly move to funds that have recently had better than average performance? What a novel and wonderful idea!
Err, wait. There’s already a name for that. It’s called chasing performance. And pretty much the entire investing world knows it’s a great way to ensure subpar results.
Paying somebody to try to beat the market is an endeavor that often proves unsuccessful. Paying somebody to help you find somebody to pay to help you beat the market just makes your odds even worse (more total expenses). And with a plan as questionable as this one…
Call me cynical, but I think “better performing funds” is just a euphemism. All we can really see is how well the funds have performed in the past. (Perhaps there is confusion about the idea that last month–while recent–is still in the past.) And frankly, this doesn’t tell us a great deal about how they’re about to do.
Did this not set off red flags for anybody else when they read it?
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