Past Performance is No Indication of Future Results
Events in the past may be roughly divided into those which probably never happened and those which do not matter.
— William Ralph Inge, Author
You need to get to the airport, and you are not sure how long it will take. You call a friend, and she says it takes 30 minutes to two hours. That’s somewhat useful, but it is a wide range, and it is based on past performance. You need more current information, so you don’t miss your flight.
That’s when you open a mapping app that uses the most current traffic and weather conditions, to let you know almost exactly how long it will take to get to the airport right now.
Investing is similar. The past is a good rough guide. It gives you a range of what you can expect. Stocks will generally outperform bonds over the long-term. International stocks are usually riskier than U.S. stocks. And so on. But if you only rely on the past, you might be led astray. It is like driving forward while looking backward.
Instead, using the most current information typically leads to more sensible decisions. Not what the market did or will do, but what is happening right now. This is what smart money managers do, every day. And it gives you a much better chance of getting where you want to go with fewer surprises.