Why Past Performance Shouldn’t Shape Future Returns Expectations
In the world of investments, it’s natural to be drawn to recent success stories. Whether it’s a mutual fund delivering impressive double-digit returns or a stock that has consistently climbed over the past three years, the temptation to expect more of the same is understandable. After all, when an investment has performed well, it creates a sense of confidence and even optimism about the future.
However, it’s important to remind ourselves — as investors and as learners — that markets are not linear. They do not promise a smooth ride, and certainly not a repeat telecast of the recent past.
Over the last three years, several investment instruments have posted robust gains. This has led many investors to believe that these returns will continue uninterrupted. But in reality, such expectations can be misleading. The performance of any fund or asset class depends on a combination of economic factors, global trends, government policies, interest rates, and even unpredictable world events. These variables are constantly changing, making it difficult — even for seasoned professionals — to forecast returns with certainty.
This doesn’t mean one should shy away from investing. On the contrary, long-term investing is a powerful tool to build wealth. What it does mean, however, is that expectations must be rooted in realism.
When we chase high returns based purely on recent past performance, we risk making emotionally driven decisions. For example, entering a fund at its peak or exiting at a temporary dip due to panic. Instead, the focus should be on the broader picture: aligning investments with your financial goals, maintaining a disciplined approach, and being patient through the natural cycles of the market.
Volatility is part and parcel of investing. There will be months — sometimes even years — when returns may not meet expectations. And then, there will be periods when the markets surprise on the upside. The key is to stay prepared, stay diversified, and stay invested. It’s about weathering both the sunshine and the storms.
It’s also helpful to remember that good investment decisions are not based on past returns alone. They are based on understanding your risk appetite, time horizon, and financial goals. A fund that delivered 15% in the past three years may not do so in the next three, and that’s perfectly normal. What matters is whether the investment is suitable for you and fits into your overall plan.
As investors, a little humility helps. Markets will have their ups and downs. What matters most is how calmly and consistently we respond to them. By tempering our expectations and trusting the process, we allow our investments the time and space they need to grow meaningfully.
In conclusion, celebrate past performance — it’s encouraging and reassuring. But don’t let it become the yardstick for the future. A balanced perspective, with room for both optimism and caution, will serve you well on your investment journey.