Ignore Investing Noise

Here's a piece from Vanguard that suggests we all ignore investing noise -- all of the constant chatter from financial media on the hot investment of the moment. Their thoughts:

Performance tables and rankings on websites and in publications—and advertisements from some fund companies themselves—suggest that choosing funds is a simple matter of selecting the ones that have performed best over some period—a year, or perhaps the past three or five years.

But focusing too intently on recent performance is very likely to lead to disappointment. That's why funds touting returns must warn in the same breath that "past performance is no guarantee of future results." The warning is true.

Yes, I agree 100%. I talked about these issues in Why You Shouldn't Listen to the Financial Media (and What They Don't Want You to Know) and Past Performance Does Not Predict Future Performance.

So, what's the alternative? Vanguard suggests you take the following steps instead to ensure good investment selection:

• Consider the source
• Have a plan
• Know what you're paying
• Evaluate performance with perspective

As many of you know, I invest a lot in index funds. My main investing accounts are with Vanguard and I agree with them on almost 100% of investment-related advice. I suggest you check out their site if you'd like more information on their philosophy.

Comments

[tinyhands]

With respect to performance, I think the question is more accurately phrased, "Do you believe in efficient markets?"

If yes, ignore the media.
If no, chase returns.

Fortunately(?), performance is not the only aspect of investing and portfolio management philosophy. If it were, you'd be the kind of investor who only owns one thing and you might be pretty unhappy after a major "unforeseen" correction.

[MossySF]

I'll add my two cents. I've been investing in mutual funds for more than a decade now but it's only mid last year I started thinking about asset allocation. At that time, I realized I sorely need more Small Cap, International and REIT exposure. But then I saw those categories had been performing gangbusters the past few years and started wondering whether I should wait for the "impending downturn" before moving money around. In the end, I decided to stop trying to guess the market direction and moved a big chunk into the necessary Vanguard funds to cover those asset classes. The move worked out nicely as since that time, small/intl/reit have all outperformed large (where the $ came from) by 5-8%. It will swing the other way one of these days but the gains until that time may be enough to offset future downturns.