Why doesn't a fund's past performance predict its future returns?

Because strong past returns are often the result of luck, a temporary trend, or a hot sector that's already had its run – none of which reliably repeats. Every fund disclosure carries the warning 'past performance does not guarantee future results' for good reason: studies repeatedly find that this year's top-performing funds frequently land in the middle or bottom of the pack in following years. Chasing last year's winners tends to mean buying after the gains have happened and the price is high. What actually does persist and predict outcomes is cost: lower-fee funds reliably tend to beat higher-fee ones over time, simply because fees come straight out of your return. So when comparing funds, weight expense ratios, diversification, and how well the fund matches your plan far more heavily than a glossy three- or five-year track record. Performance charts sell funds; costs build wealth.