Each of these periods is a "snapshot" of a fund's actual real-world performance. With dozens of these snapshots averaged together, you can arrive at a more accurate measure of how a fund is performing.

Take a look at the table below.

What you should notice is that the annualized three-year returns look pretty darned spectacular. And the five-year numbers look pretty punk.

The net result is that if you were to rank the Vanguard funds by their three-year returns, the ranking would look quite a bit different from the ranking based on five-year returns.

For example, Value Index shows a 3-year average annual return of 16.3%...but its ROLLING RETURN is just 5.8%—64% less.

Windsor II shows a standard 3-year return of 15.7%. An inexperienced investor might be inclined to dump a big wad of cash into this fund. But my more scientific rolling return analysis shows this fund posted a very modest 6.8% over a 3-year time period—or less than one-half as good.

So keep your skeptic's hat on when these three-year and five-year "ranking" articles appear in a newspaper or magazine.

One Vanguard fund that has superb rolling returns is Strategic Equity.

As the markets swing from growth to value, or vice-versa, this fund goes with the flow and will continue to outperform most of the small- and mid-cap funds with low expenses and optimized trading strategies.

Run by Vanguard's chief investment officer using the computers also used to run their hundreds of billions in indexed assets, Strategic Equity should be a central part of any Vanguard investor's portfolio.

Vanguard itself uses this Rolling Returns method when assessing the performance of its own fund managers. It doesn't share those numbers with its investors, but keeps the results secret.

Shouldn't you know the rolling return record of the funds you own—or are thinking of buying?

You can get the rolling returns data for ALL Vanguard funds simply by accepting a risk-free trial subscription to The Independent Adviser for Vanguard Investors. For more details, click here.

Dan Wiener has spent a lifetime perfecting a system for sorting out the winners among Vanguard’s funds from the many also-rans. He finds and publishes very hard to find information about Vanguard—inside help that gives subscribers to The Independent Adviser for Vanguard Investors special advantages over other investors at Vanguard. To gain this competitive advantage for your portfolio, consider a no-risk trial to The Independent Adviser today.

For more mutual fund advice, visit our Mutual Fund Investing section. You'll find timely insight and advice on finding the best mutual funds for your money—and the ones to avoid, mutual fund do's and don'ts and MORE!