8.36Why 1-year returns alone are insufficient
1What is it?
A single year can be luck, one lucky sector bet, or a market-wide rally.
2Why does it exist?
Funds topping one year’s charts often lag the next. Chasing last year’s winner is a common mistake.
3Diagram
Fund A: last year
45.0%
Fund A: 5-yr CAGR
9.0%
Fund B: last year
22.0%
Fund B: 5-yr CAGR
15.0%
4Quick revision
- 1 year = noise.
- Look at 3, 5, 10 years and consistency.
5Knowledge check
Q1. Fund +60% last year: automatic buy?Show answer
No, check longer-term consistency and risk.
Q2. Minimum period to judge an equity fund?Show answer
At least 3–5 years, ideally including a bear market.
Q3. What is "performance chasing"?Show answer
Buying whatever did best recently.