Why investors earn less than their funds

Your fund's return isn't your return

A fund's published return measures how much one euro grew if it stayed invested for the whole period. But real investors don't do that: they add money after good periods and take it out after bad ones. Their actual return, weighted by the money really invested, can be very different.

Morningstar's annual Mind the Gap study estimates that over the 10 years to 2024, the average dollar invested in US funds and ETFs earned 7.0% a year, against 8.2% for the funds themselves: a gap of about 1.2 points a year.

What 1.2 points a year is worth

On €100,000 over 20 years, the difference between 8.2% and 7% is the difference between about €484,000 and €387,000: nearly €100,000 less, without changing a single investment, just because of when money went in and out.

An honest note: the figure is disputed

In 2026 a study in the Financial Analysts Journal challenged this reading: according to its authors, much of the gap comes from how returns are calculated when cash flows grow over time, not only from investor mistakes. The debate is open, and the exact number should be treated with caution.

What nobody disputes are the behaviours that do damage. And the same Morningstar study shows something interesting: in balanced funds, where investors have fewer reasons to intervene, the gap was almost zero, around 0.1 points.

The costliest mistakes

• Selling after a crash: it turns a temporary loss into a permanent one, and people often get back in once prices have already recovered.
• Chasing past returns: buying the fund or sector that rose most last year often means buying near the top.
• Waiting to break even: holding an expensive or unsuitable investment just because it's at a loss, hoping to recover. The price you paid doesn't matter for the future: what matters is whether, from today, that investment is the best choice. Meanwhile, fees keep running.
• Changing strategy too often: every change has costs, taxes and, above all, the risk of getting in and out at the wrong moments.

How to protect yourself from yourself

1. A written plan: goals, horizon and rules decided with a cool head, before markets test your nerves.
2. Automation: automatic regular contributions remove the temptation to "wait for the right moment".
3. Simplicity: a few well-diversified instruments, rebalanced by fixed rules.
4. Separate cash: knowing the next few years of spending are safe, as in the bucket strategy, makes it far easier to leave the rest alone.
5. An outside view: someone who doesn't earn from products and who, in difficult moments, reminds you of the plan. It's worth more if they have no interest in making you buy or sell, as in the fee-only model.