Disclaimer about disclaimers

This month, there are two topics. The first is a disclaimer about disclaimers. The second is a market update (with our usual disclaimer: “Ignore market updates and stick to the plan”).


Disclaimer about disclaimers

You might recognise this line:

“Past performance does not guarantee future results.”

You’ll see it in many places that talk about investments. However, research by the University of Leeds shows that the wording isn’t as useful as you might think.

  • Many people think past performance can be a useful indicator of future performance. For example, you can probably trust an electrician you’ve used before to do an equally good job the next time you book them.
  • That’s probably why many people think past performance correlates with future results, it just doesn’t ‘guarantee’ them.
  • The truth is that there is no relationship at all between past performance and future performance.

In addition to this, many people instinctively believe higher fees mean better outcomes – but the opposite is true.

It’s the snob factor that links higher prices to higher social standing. For example, thinking that Cazenove Capital must be OK because they were the Queen’s stockbroker, or that Coutts Private Banking & Wealth Management must be good by virtue of their upmarket brand name.

However, the markets are unpredictable. The only thing that can be guaranteed is the cost of the fund. That’s why we recommend low-cost funds. This approach has consistently been proven to generate better results over time.

In fact, the researchers suggested a new disclaimer that’s closely aligned with our thinking:

“Some people invest based on past performance, but funds with low fees have the highest future results.“

In the study, this limited investors from chasing past performance and meant they chose the low-fee funds more often.

The recommended wording is based on the principle of social proof from the EAST model, which is part of nudge theory. It says you can’t force people to change behaviour, you can only nudge them in the direction you want them to go. To do this, communications should be:

  • Easy
  • Attractive
  • Social
  • Timely

There’s more on this in the book Nudge.

By the way, we’ve never used the standard wording we’re critiquing above. Our disclaimer is:

“Please remember that the value of your investments can go down as well as up and that past performance may not be indicative of future results.”


Market update: Hindsight is a wonderful thing

To mix three metaphors, we’ve been through a dip and we’re not yet out of the woods, but things are looking rosier. I thought it would be interesting to look back and see when the market bottomed out.

Looking back at our Trivium funds, the lowest value was 14 October 2022…

Low point

And here’s the growth since the low point…

Growth since the low point

Looking back at our Trivium funds, the lowest value was 14 October 2022. As of 12th April, the:

  • Green line (100% equities) shows a return of 7.37%
  • Amber line (50:50 equities and bonds) shows a rise of 7.32%
  • Red line (100% bonds, which got hammered last year) shows an increase of 7.28%

So, whichever ratio of bonds and equities you’re invested in, the value has risen by more than 7% since October’s low point.

The lesson is: Ignore the market movements! Stick with low-cost funds, diversify widely, and the value of your investments WILL rise when you wait long enough.

Lance Baron

Certified Financial Planner (CFP) based in East Sussex, UK. We support people in Southeast England with more than £500K to invest by building a financial plan that will help them live the life they want… until age 100