8.48Avoid choosing funds only because they recently did well
1What is it?
Recency bias is assuming recent winners will keep winning.
2Why does it exist?
Last year’s top sector fund often lags the next year. Investors who chase end up buying high and selling low.
3Practical use
Choose the category that fits your goal first, then a consistent, low-cost fund within it. Review once a year, not every month.
4Quick revision
- Don’t chase last year’s winner.
- Goal → category → consistent low-cost fund.
5Knowledge check
Q1. What is recency bias?Show answer
Over-weighting recent performance.
Q2. How often should you review funds?Show answer
About once a year.
Q3. What should you decide first: fund or category?Show answer
Category.