Here's a piece from Kiplinger's giving some advice to avoid short-term performance when determining the value of an investment newsletter. Their findings:
When you're picking investment newsletters, ignore short-term performance. Instead, focus on how the newsletter has done over the long haul. Ten-year performance is ideal.
The worst way to pick a newsletter is to pay attention to the previous year's performance. Over the past 15 and a half years, you would have lost an annualized 13% by focusing on one-year performance. Your money would have essentially been wiped out following such strategies.
By contrast, suppose you selected newsletters based on their performance over the previous ten years. Over the past 15 and a half years, you would have earned an annualized 9%. That still lags the S&P 500 by one percentage point per year, on average. But, obviously, concentrating on ten-year winners is better than focusing on one-year winners.
What about shorter periods, such as three years and five years? The longer time period you consider, the better. Focusing on five-year winners would have earned you an annualized 7%. Three-year winners would have lost you an annualized 1%.
Ok, let's stop here and digest this. Here's what I'm getting out of the information above:
1. The longer the performance period you look at, the better predictor of success for an investment newsletter. Makes sense to me.
2. Here's the blockbuster finding to me: even the ten-year period "lags the S&P 500 by one percentage point per year, on average." So, why not just go with an index fund and save yourself the cost of the newsletter (Later in the article Kiplinger says, "all these newsletters cost a bundle -- all of which comes off the top of your profits") and the time involved in picking and managing their recommendations?
The bottom line: Index funds allow you to earn more without a big time commitment in applying a certain newsletter's strategy. To me, it seems like a no-brainer to invest in them.
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