Poor Fund Timing Cost Investors 12% of Returns Over a Decade

Full analysis

Morningstar's 2026 Mind the Gap report found that investors in U.S. mutual funds and ETFs earned about 8.7% per year on average over the 10 years ending December 31, 2025, while the funds themselves returned 9.9% per year — a gap representing roughly 12% of total available returns, or about $3.8 trillion in lost gains. The culprit is the timing and size of cash flows: investors tend to buy after prices rise and sell after they fall, locking in losses. Morningstar researcher Jeffrey Ptak noted that even routine practices like rebalancing can contribute to the gap, not just impulsive decisions.

Investors fared best in allocation funds — such as target-date and target-risk funds that blend multiple asset classes automatically — where the annual return gap was only 0.7%. U.S. equity fund investors had the smallest gap at 0.4%. The worst results came from alternative funds (1.6% gap) and sector equity funds (1.2% gap). Crypto ETF investors suffered the most, with a gap of roughly 14% in just one year, largely from buying high and selling low. The practical takeaway: simpler, broadly diversified funds that reduce the temptation to time the market tend to close the gap between what funds earn and what investors actually keep.