Ethan Schwartz, Columnist

Don’t Bet Your Retirement on a Fake Track Record

Regulators should curb insurers’ use of hypothetical returns to sell investments.

June 17, 2019 at 11:00 AM UTC

Ethan Schwartz has worked as an investment manager and financial services executive for 21 years. He was a special assistant to the deputy secretary of the Treasury in the Clinton administration.

A sure thing?
Photographer: Alan Crowhurst/Getty Images

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Suppose you like to play the horse races, and your bookie tells you he has developed a surefire, computer-generated formula for picking winners. It’s based on hundreds of variables such as the weather and a horse’s age, and he has “backtested” it on 20 years of track history. Now he’s offering to let you bet $50,000 using the formula’s recommendations.

Would you do it? How can you be sure that the historical success isn’t a fluke? Even worse, what if he deliberately designed his formula to look better than it is, so he can take your money at odds he knows are in his favor?