Want to Pick a Winning Money Manager? Here’s What Really Matters

Investors are often drawn to a familiar promise: Identify a skilled money manager, follow their past success, and outperform the market. If only the process of how to find a money manager were this easy. As it stands, decades of evidence suggest this approach is far more difficult than it at first appears. Here’s why.

Financial markets are highly competitive. Prices quickly reflect new information, making it challenging for any money manager to consistently outguess the market. Over long periods, only a small percentage of managers outperform their benchmarks, and that number shrinks further once survivorship is considered. Many funds simply don’t last through full market cycles, closing or merging along the way and leaving investors with unintended changes.

A common reaction is to simply “buy the winners.” The problem is persistence. Research shows that funds that rank among the top performers in one period are unlikely to remain there in the next. In fact, only about 23% of top-quartile funds stayed top-quartile in the following period: roughly what chance alone would predict. Past performance, on its own then, has proven to be a poor guide for future results when thinking about how to find a money manager.

While identifying tomorrow’s winning money manager is difficult, there are factors investors can evaluate with greater confidence, especially costs. Higher expense ratios and higher portfolio turnover create built-in headwinds that reduce the returns investors actually keep. These costs, many of which are less visible, can quietly compound over time.

Even index funds, often viewed as low-cost solutions, can carry implementation costs related to trading and rebalancing. Low fees don’t always equate to low total cost.

At Buttonwood Wealth, our focus isn’t on chasing performance or compelling stories. Instead, we emphasize: disciplined, research-based investing; paying close attention to diversification, costs, and taxes; and long-term alignment with your goals.