First I always hear it and for this arguement I am playing devil’s advocate to a degree. With that said I understand you can’t simply look at past performances and that it.

In a vacuum and in theory I get that you can’t go on past performance at the end of the day as a main factor for future performance, but then that would be the end of all debate and discussion regarding mutual funds and everything else under the sun for point #1. Which I don’t think can or should be the case.

EVERYTHING is a variable and I have yet to come across a solid arguement as to why looking at past returns [in a small percentage of the pie] is a bad idea.

Fund A [S&P 500 index] has made 30% a year for 30-years and Fund B [S&P 500 index] had made 1% for 30-years and in that specific case, both are viable options because the performances were “in the past” and we don’t know the future?

I would love if someone could explain in some detail how the average investor should NOT be concerned with my scenerio.

As for the data, there are not data of one day, but 3-year average return which happens to be the longest tracking records for all the funds listed in the article. If there are 10-year data available, I will use them to see if I can get the same conclusion. Unfortunately no long-term data is available because of the short history of the funds. While it’s true that past performance doesn’t guarantee future results, we can’t simply discard a fund’s past performance, unless you totally don’t trust any tracking record. Do you look at a fund’s tracking record when evaluating a fund? I am not suggesting that one should only look at the performance. It’s an element of the question, not the element of the equation. And when you pick a mutual fund to invest, do you always choose funds at the bottom of the category as you suggested one should do? If you do, could you please share your holdings with us? I don’t do that and I am not sure how many out there doing that.

I don’t agree with you that “The only thing the investor can control (of the things you mention) is costs.” I don’t think an investor can control the cost. You can choose what expense level is acceptable to you, but you really don’t have any control of the cost once you invest in the fund. The fund’s cost will change whether you like it or not. You can only control which one to invest. Speaking of costs, the reason I think people like Vanguard is that it has a proven record of offering funds with low cost. That’s kind of “past.” Do you trust this “past”? Nobody can guarantee Vanguard will never charge 1+% expense ratios for its funds, though it’s unlikely. The same is true for fund’s performance. Nobody can guarantee Vanguard fund’s performance will continue to lag TRP fund for the next ten years, and nobody can say Vanguard will outperform TRP either.

Since you said the article is “very bad” but all your comments seem to be on the cost/performance. I like to hear from you what else of the article you consider “very bad” so I can correct it.

“There’s no doubt that Vanguard is always the leader in providing low-cost investment options, but does not necessarily mean Vanguard funds automatically become the choice. For the above listed funds, Vanguard funds are about 0.5% less in expense ratio (ER), but they lag about 2% in performance as compared with TRP funds.”

You simply cannot examine one data point (ie: the performance of three funds at the end of business on a particular day) and declare that it means anything. Why?

1) It occurred in the past – it’s over.
2) The market has somewhat of a cyclical nature. In other words, all other things being equal, you’d probably be wise to pick the worst performing fund going forward – NOT the best.
3) The only thing the investor can control (of the things you mention) is costs. In other words, a low expense ratio should be given a MUCH higher weighting in the decision making process than past performance.
4) One data point is not enough to mean anything – not even close.

I could go on, but all of this is investing 101. There is much misleading information out there, and only by reading extensively will an investor be able to separate the good information from the bad. This article, while appearing to be well-meaning, is in the “bad” category. Very bad, IMO.