Why Chasing Investment Returns Is the Worst Way to Pick a Portfolio (or an Advisor)

Looks like a sure bet—just like backtested portfolios.

“What are your returns like?”

Picture this: Yours truly is hosting a neighborhood barbecue, beer in hand, flipping burgers. Between feeding kids and talking about weather, the conversation drifts to investing, and someone inevitably asks me, “So, what do your returns look like?”

It’s the question I get the most, whether I’m in a client meeting or next to a grill.

It’s a fair question. After all, most people think returns are the ultimate scoreboard. If you’re going to trust someone with your money, shouldn’t they be beating the market?

But here’s the problem: the question is a trap.

It centers on a backward-looking measure, hindsight used as insight, and often leads you to the wrong advisor or the wrong investments.

Why Past Performance Feels Like Common Sense

Let’s say you’re setting up your 401(k). You log in, see a list of funds, and what jumps out? That handy little table showing 1-, 3-, 5-, and 10-year returns.

Are you analyzing asset classes? Diving deep into correlations or long-term diversification benefits?

Probably not.

More likely, you sort by performance—maybe by YTD, maybe 10-year—and pick the funds that look like winners. It feels rational. Long-term returns = long-term success, right?

But in reality, you’ve just locked in a strategy based entirely on hindsight. You bought what worked, not necessarily what will work. And you’re not alone, this is exactly how many portfolios are built and sold.

The Performance Pitch (and Why It’s So Tempting)

Advisors know that returns are emotional and are fueled by both fear and greed. So when a new prospect asks, “What kind of returns can I expect?” they often respond with the most convincing portfolio they can build…on paper.

Here’s how that playbook works:

1. Screen for past winners. Filter for the funds that had the best 1-, 3-, or 10-year performance.

   
   

2. Backtest. Rewind the tape and show what this portfolio would have done, if you’d held it all along. Trust me, no one has ever seen a bad backtest.

   
   

3. Impress. Package it as if it’s a signal of skill, not hindsight.

   
   

The result? A pitch that looks fantastic, but reflects the past, not the future.

It’s like flipping to the back of a textbook, copying the answers, and claiming you aced the test.

Performance Chasing Fails (and the Data Proves It)

It’s easy to fall for shiny numbers. But performance chasing rarely works in the real world. Here’s why:

Take a look at the data:

• S&P Dow Jones SPIVA Scorecard –Over the past 15 years, 92% of actively managed U.S. stock funds have underperformed their benchmark. 1 in 10 odds of picking the winners.

  Translation: Even the pros can’t consistently pick winners.

• DFA Mutual Fund Landscape – Only 22% of top-quartile funds remain in the top quartile five years later.

  Past winners don’t stay winners.

• Morningstar Mind the Gap Study – Investors often underperform the very funds they invest in, because they chase hot returns and bail when things cool off.

  The strategy isn’t just flawed, it’s harmful to outcomes.

The industry even warns you: “Past performance is no guarantee of future results.” Yet it’s still the first thing most people look at, and the first thing most advisors present.

What Actually Works

If returns don’t tell the whole story, what does?

Great portfolios aren’t built on forecasts or flashy charts. They’re built on process and principles.

• Diversify wisely – Diversify wisely. Spread exposure across asset classes and geographies. Don’t chase trends, manage risk.

• Minimize costs – Fees eat returns. Choose low-cost, tax-efficient investments.

• Think long-term – Markets get noisy. Your strategy should stay steady.

This approach won’t give you “sizzle,” but it will give you a strategy that actually works.

Questions to Ask Your Advisor

Before you sign on with someone based on their “performance,” ask:

• Is this portfolio hypothetical or real?

  If it’s a backtest built after the fact, not built on process or your actual living expenses it’s not a strategy, it’s a marketing tool.

• Can you show me real client results, not just hypothetical returns? No advisor can guarantee results, but they should be transparent about real-world implementation—not just cherry-picked numbers.

• How does this align with my goals and risk tolerance? The best portfolio on paper isn’t always the best fit for your life.

If someone dodges these questions, or leans too hard on performance, have a healthy dose of skepticism.

If It Looks Too Good to Be True…

The best-looking portfolio isn’t always the best-built one.

Whether you’re picking funds for your 401(k) or evaluating an advisor’s pitch, be skeptical of anything that shines too brightly in hindsight. The real test of an investment strategy isn’t how it performed in the past, it’s how well it prepares you for whatever comes next.

About the Author

Carson McLean, CFP® is the founder of Altruist Wealth Management, where he helps investors cut through industry noise and focus on what actually works. With over 15 years of experience—and a healthy skepticism of performance-driven sales tactics—he believes in evidence-based investing, flat transparent fees, and portfolios built for real life, not marketing decks.

Disclosure:

This content is for informational purposes only and should not be considered investment advice. Past performance is not indicative of future results. All investing involves risk, including the potential loss of principal. Any examples discussed are hypothetical and for illustrative purposes only. Altruist Wealth Management is a fee-only, fiduciary financial advisory firm registered with the SEC. Registration does not imply a certain level of skill or training.