Fun Facts Newsletter | October 2016

“Don’t chase past performance” is one investment mantra that makes sense but is hard to live by. It applies to both asset allocation decisions (let’s double up on large cap growth stocks since they have been up the most over the last three years) and individual mutual fund selections (let’s buy XYZ Fund—it’s up 50%!). If you need a well-researched reason not to chase past fund performance and another good reason that supports our investment strategy, we have the Fun Facts for you! Standard & Poor’s publishes “The Persistence Scorecard,” which tracks how top-performing funds in one time period continue to perform in future time periods. Bottom line, relatively few funds consistently stay at the top. Specifically, out of 641 U.S. stock funds that were in the top 25% as of March 2014, only 7.3% managed to stay in the top 25% by the end of March 2016. The longer the time period, the lower the persistence: Only 0.78% of large cap funds and no mid cap or small cap funds stayed in the top 25% after five years.

Fortunately, for our clients, we manage and reduce this risk by using asset class or index funds. These funds have a much higher probability of matching their underlying asset class performance due to their broad diversification and low cost. Hopefully, this helps you sleep better at night and increases your financial peace of mind!

Shifting to seasonal highlights, October is National Cyber Security Awareness Month. So appropriate for Halloween! While we are not technology experts, we do recommend that you use long and complicated passwords for financial accounts and websites with personal confidential information, and different passwords for different websites, which may include simpler passwords for websites like general news or sports subscriptions.

Last month I said I had one and only one comment on the presidential election, but here is one more to consider: The stock market reacts strongly to unexpected news. This presidential election and its candidates are more controversial than we have seen in several elections, but all public news is already reflected in the stock market. We know that one candidate will get elected. The stock market isn’t spiraling down in fear that one candidate or the other will get elected. You shouldn’t live in fear either.

Happy October and happy Halloween! As always, please contact us with any questions, news or comments.

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