First principles of investing

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6. Is past performance a guide to the future?

Performance statistics may hide more information than they reveal. However, they may be a useful aid provided you bear in mind the following important caveats:

• They must be coupled with a clear understanding of how past performance was achieved;
• They must be combined with an assessment of the current investment style of the management team;
• The individuals responsible for past performance must still be in place; and
• The risks taken to achieve these returns must be acceptable.

It may be wise to be wary of very small funds (insufficient scope for diversification) and high charges (undermine your return) and do check for flexible, penalty-free exit terms.

1. Five steps to establish your investment goals 2. Your attitude to risk and reward 3. The major asset classes 4. Which type of manager? 5. Your investment assessment kit 6. Is past performance a guide to the future? 7. Easy access deposits for emergencies 8. Fixed income products 9. A rising income 10. The choice of collective equity funds 11. Pensions and ISAs 12. Tax efficient but may be very risky 13. Selecting your shares 14. Your stockbroker 15. Buying your shares 16. Ethical Investment 17. When to sell 18. How to keep your portfolio on track 19. Do you need an adviser? 20. Conclusion

• First Steps in Shares
• How to Read the Financial Pages