Annual Review Due and You Are Being Sold Numbers?
Peter McGahan
Monday 2nd March, 2026.
I WOULD consider this one of the most important aspects of financial and investment planning and one of the greatest risks. Stay with it until the end to understand the mistakes which are easily made when choosing what funds you are invested into, and recognising you are being told that you are in the wrong fund, pushing you into a fund at a high, or taking you out at the low.
Cumulative performance analysis is the habit of judging an investment by the total return it produced between two dates. It is the chart which says top over 1,2,3,4,5 years with the headline which says: “up 52 per cent over five years”, or “since inception”. It compresses years of ups, downs, recoveries, fees and luck into one clean number and one neat line. But, it is irresponsible sales twaddle.
It does not tell you how you got there, how violent the ride was, whether the risk was appropriate, or whether the conditions which delivered it still exist.
Why is it at best meaningless, if not a crude route to getting it wrong? Move the start and end dates by a few months and you can flip the marketing story from “genius” to “mediocre”. Trust me. A chart which begins just after a market fall flatters almost anything that takes risk. A chart which begins just before a fall makes even sensible strategies look broken.
It hides the journey, and the journey is what investors actually experience when invested. Two funds can show the same cumulative return while one delivered it with repeated gut-wrenching collapses and the other with a smoother ride. If the path is unbearable, people abandon it – at the wrong time.
A bigger trap? Cumulative performance is a remarkably reliable way to get the wrong outcome because it encourages performance chasing. The best-looking cumulative numbers usually appear after the market has already repriced whatever drove the result. By the time a fund is top of the table, its style or internal holdings has often become popular, crowded and expensive. S&P Dow Jones Indices’ SPIVA Persistence Scorecard (year-end 2024) notes that among US domestic equity categories, none of the funds that were top-quartile as at December 2020 stayed top-quartile over the following four years. Exactly what we would expect as an investment adviser.
A portfolio (your pension and ISAs etc) can generate great cumulative performance by being concentrated in a ‘hot’ sector, ie leaning into one factor which just happened to lead. You then buy it because it’s now marketed heavily. Now you buy at the wrong time.
You add money when you feel confident and stop, or sell, when you feel bruised. Morningstar’s latest US Mind the Gap work covering the decade to December 31, 2024, found that investors, on average, earned about 1.2 percentage points per year less than the funds they invested in, largely because of the timing and size of their contributions and withdrawals. Cumulative performance charts are a trigger for exactly that behaviour.
DALBAR’s Quantitative Analysis of Investor Behaviour gives the same message in a different way. In its release dated March 31, 2025, DALBAR reported the average equity investor earned 16.54 per cent in 2024 versus 25.02 per cent for the S&P 500, a gap of 8.48 percentage points, driven by poor timing decisions. If you build your buy and sell decisions around cumulative performance, you are effectively building a system which nudges you to join after strong runs and leave after weak ones.
What does that do to your portfolio? It turns investing into a relay race where you keep grabbing the baton after the sprint has finished. You increase turnover, costs and tax drag, you abandon diversification because yesterday’s winner becomes today’s “best idea”, and you erode the one advantage private investors have: time.
None of this means you should ignore history. It means you should stop using cumulative performance as your compass. There is a reason the Financial Conduct Authority (FCA) requires a prominent warning that past performance refers to the past and is not a reliable indicator of future results when performance information is shown and much of it is poor research and following cumulative marketing return.
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Peter McGahan is the Chief Executive Officer of Independent Financial Adviser firm, Worldwide Financial Planning. Worldwide Financial Planning is authorised and regulated by the Financial Conduct Authority.
