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Chapter 27. What Really Determines Your ... > Failure of Most Portfolios to Outper...

Failure of Most Portfolios to Outperform the Relevant Benchmark on a Risk-Adjusted Basis

Investors are betting on continued good performance when they buy many funds, and such performance simply does not always materialize. In many cases, the issue becomes one of the fund performing as well as some other investment with a steady rate of return. In the case of equity mutual funds, the other investment can be thought of as an index fund.

Let's consider this issue in more detail. Investors often make critical mistakes in thinking about a series of returns on their investments. They think, wrongly, that if the performance is really great one year, it will offset one or more bad years. Maybe it will, but often it does not.


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