Shortly after the 2018 Winter Olympics closing ceremony, I started thinking about the 2022 Winter Olympics. Will Russia dominate figure skating? Will Norway and Germany win the most medals?

My questions reflect a deep-rooted acceptance that past performance is key to forecasting future events.

As Figure 1 illustrates, Germany has placed first or second in the medal count in 7 of the 8 Winter Olympics since 1992.*

Figure 1: Countries ranked by number of medals for each Winter Olympic Games

Note: There were 92 nations competing in the Winter Olympics as of 2018. Athletes from Russia competed as the “United Team” in 1992 and as the “Olympic Athletes from Russia” in 2018.

Source: Vanguard, based on data from The International Olympic Committee.

Drawing on past performance to make inferences about the medal count in future Olympics is a logical approach you can apply to other events too, like picking a restaurant. (Why risk eating at a lousy restaurant when diners’ recommendations and ratings are a click or touch away on Zagat or Yelp?)

It’s true that basing your present-day decisions on past performance works in some situations. But that doesn’t make prognostication a reliable strategy for choosing your investments.

Why don’t all top-performing investments continue to outperform? It’s complicated.

Projecting a country’s future medal count in the Olympics is based on a finite number of related factors, including athletes’ collective skill level and previous performance. But the factors that affect investment outcomes, such as market volatility, political and economic climate, and expectations around company or sector performance are cyclical and random.**

When you’re selecting mutual funds, you have easy access to rankings, ratings, and historical returns. However, research shows that top-performing funds rarely make it to the medal podium twice.

Figure 2 shows how top-performing, actively managed U.S. equity funds in the 5 years ended December 31, 2011, fared over the next 5 years. Only 16% of the funds in the top quintile during the first 5-year period remained in the top quintile during the second 5-year period. Simply put, past performance isn’t a reliable indication of future performance.

Figure 2: Past performance doesn’t predict future performance

Note: The chart ranks all actively managed U.S. equity funds within each of the Morningstar style categories based on their excess returns relative to their stated benchmark during the first 5 years through 2011 and compares how they fared over the next 5 years through 2016.

Source: Vanguard calculations using data from Morningstar, Inc.

Break the cycle of making poor investment decisions

We’re creatures of habit. It’s human nature to rely on what we’ve learned in the past—we won’t (knowingly) touch a hot stove twice, in other words.

Old habits die hard though. While you might not be able to eliminate the influence of past performance when selecting your investments, you can take measured steps to achieve a more balanced approach.

1. Be aware of the situation. We make decisions based on our experiences every day. For example, if you’ve had several positive experiences eating at the food truck outside your office building, you probably won’t be disappointed if you eat there again today. The factors that affect your experience—menu, food quality, and value—are consistent. But investing is different.

Market performance and other factors are unpredictable at best (and erratic at worst), so it’s unproductive to rely on a “past performance predicts future results” mentality. In fact, research shows that historical investment performance appears retrospectively more random than predictive.**

2. Control what you can. Focus your energy on costs and asset allocation. There are predictable benefits to choosing low-cost investments and maintaining an appropriate asset allocation. Low-cost investments can help you keep more of your returns, and a suitable asset allocation can help you manage risk. Actually, for investors with a well-diversified portfolio, your asset allocation affects your returns more than any other choice you make.†

On the flip side, there are no predictable benefits to making investment decisions based on past performance.

3. Be disciplined. If you have a simple financial plan with clear goals and an appropriate asset allocation, have confidence in your portfolio during good times and bad. And once you create a financial plan, it’s easy to be a disciplined investor—all you have to do is stick to your plan.

Know yourself

Coaches can be the key to unlocking an athlete’s potential. A good coach teaches self-awareness, control, and discipline—qualities that can lead to consistently better performance. If you need help making the best possible investment decisions, consider partnering with your own “coach”—a financial advisor who can help you get on track and maintain momentum until you reach the finish line.

*1992 was the first Winter Olympic Games in which a unified Germany participated since 1964.



  • All investing is subject to risk, including the possible loss of the money you invest.
  • There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.