The Flip Of A Coin

Let's imagine that you're flipping a coin over and over again and tracking the results.

After 100 flips of the coin, you get 100 "heads" results.

What is the probability that the next coin toss will be a "tail"?

It's exactly 50% or a 1-in-2 chance.

There is no higher probability of getting a "tail" just because you've experienced a lot of "heads".  In flipping coins, there is no such thing as a trend.  

Now, if you flipped the coin 1,000 times or 10,000 times, you would expect to get a more even or normal distribution of "heads" vs. "tails", but even then, there's no guarantee that this will be your experience.

The same is true of relying too heavily on past investment performance as an indicator of what will happen in the future.  This applies to individual stocks, mutual funds, gold, oil, and pretty much anything else you can invest in.

You've likely heard or read the oft-used disclaimer:

Past performance is no indication of future returns

Well, it's true.

Certainly, over long periods of time, you might expect "reversion to the mean" or a fairly normal distribution of returns, but I don't know that I would be willing to risk your financial future on that proposition.

Instead, I think you should consider what produces returns and what risks are worth taking and then creating a strategy that is aligned with your hopes and dreams for the future while balancing the risks necessary to get you there safely and on time.

Don't fall prey to the siren song of past performance.  Otherwise, your future financial security could come down to the flip of a coin.