Are you one of the investors that left money on the table?
The latest Mind the Gap research reveals investors are still lagging fund returns.
The Mind the Gap report analyses US fund data, but with more similiarities than differences in our respective markets, the insights are still extremely valuable for Australian investors.
The average dollar invested in US mutual funds and exchange-traded funds earned 8.7% annually over the trailing 10 years ended Dec. 31, 2025. That’s about 1.2 percentage points per year less than these funds’ 9.9% aggregate annual total return over that span, equivalent to about 12% of the funds’ aggregate return.
That gap is not due to the funds’ performance; it reflects the timing and size of investors’ purchases and sales.
On a positive note, the average dollar invested in US stock funds and ETFs gained 12.8% per year, just shy of the funds’ 13.3% aggregate annual return over the 10-year period. In other words, investors captured virtually all of those funds’ returns, a great outcome.
That’s the bad news/good news story from the 2026 edition of our long-running Mind the Gap study. In it, we estimate the return of the average dollar invested in US funds and ETFs and compare that to the funds’ aggregate total return.
Mind the Gap has been a popular study because it yields insights into the factors that can affect the outcomes investors achieve in dollar terms, such as a fund’s investment focus (US equity versus alternative, and so on), vehicle type (that is, open-end fund versus ETF), management style (active versus passive), or other attributes, like fees and return volatility. Those insights can help investors avoid practices or circumstances that might hold back their dollar-weighted returns.
New to the 2026 report is a case study in which we assess investor outcomes in three emerging types of ETFs: buffer ETFs, leveraged single-stock ETFs, and crypto ETFs.
Here are the key findings and takeaways from this year’s study.
There’s still a gap
Annual investor returns and total returns of US open end funds and ETFs
Source: Morningstar; author’s calculations. Data as of Dec. 31, 2025. Excludes “commodities” category group and funds of funds.
The 1.2-percentage-point gap in US funds and ETFs is more or less in line with gaps that we estimated over the 10-year periods ended Dec. 31, 2021, through 2024.
US stock funds nad ETFs rolling 10 year annual investor return gaps
Source: Morningstar; author’s calculations. Data as of Dec. 31, 2025. Excludes commodities and fund-of-funds.
The takeaway: Hold the line on transactions, especially discretionary, ad hoc trading in response to recent events; regiment transactions using approaches like dollar-cost averaging or a systematic withdrawal plan.
Stock fund investors made history
Considering that US equity funds were the largest group by net assets ($5.8 trillion as of Dec. 31, 2015), this meant US stock fund investors accumulated more than $12 trillion in wealth over the period. That not only far exceeded the dollar appreciation investors saw in other types of funds, but also arguably made it the largest haul in any decade in fund history.
Annual investor returns and cumulative market appreciation by US category group
Source: Morningstar; author’s calculations. Data as of Dec. 31, 2025. Excludes commodities category group. The “alternative” category group also includes funds assigned to the “nontraditional equity” category group
The takeaway: US equity fund investors largely stayed the course, and that resolve worked to their benefit, writ large.
Simplicity and automation won out
As in prior studies, we found investors in allocation funds, like target-date funds, captured a larger share of those funds’ total returns than they did in other types of funds, the only exception being US equity.
Annual investor return gaps by category group
Source: Morningstar; author’s calculations. Data as of Dec. 31, 2025. Excludes commodities category group. The alternative category group also includes funds assigned to the nontraditional equity category group. Gap numbers may not match differences in returns due to rounding.
Allocation funds invest across multiple asset classes and take care of tasks like rebalancing and adjusting the asset mix over time, making them low maintenance. Moreover, because they’re often a fixture of retirement plans, they’re typically used in a systematic fashion, with investors making regular purchases as part of routine periodic contributions.
The takeaway: Hold fewer, more widely diversified funds and, where possible, opt for strategies that handle routine tasks like rebalancing.
Volatility pushed buttons
One of the enduring findings from the Mind the Gap study has been the relationship between volatility and timing gaps. The more volatile funds of a given type have tended to be, the less success investors have had in capturing their returns, and vice versa for less-volatile funds.
That showed up in the results for this year’s study as well, with smaller gaps among more stable funds and wider gaps in volatile funds.
Annual investor gaps by standard deviation quintile
Source: Morningstar; author’s calculations. Data as of Dec. 31, 2025. Excludes commodities category group and funds of funds. Gap numbers may not match differences in returns due to rounding.
The takeaway:The study isn’t a call to swear off more volatile funds, but it does underscore the need to be clear-minded and act with resolve when investing in streakier, somewhat less predictable vehicles, knowing that the sheer magnitude of such moves could spark an urge to buy or sell, with all the attendant risks of mistiming those transactions.
Crypto mavens stumbled
The findings were especially sobering for investors in cryptocurrency ETFs, who struggled to time their transactions. From January 2024, when the first batch of crypto ETFs listed, through June 30, 2026, we estimate the average dollar invested in these ETFs lost around 5.8% per year, which was more than 14 percentage points less than the ETFs’ 8.5% per year aggregate total return over that span.
Crypto ETFs: Annual investor returns and total returns
Source: Morningstar Direct; author’s calculations. Data as of Dec. 31, 2025. Limited to spot bitcoin ETFs in Morningstar’s digital assets category that existed as of Jan. 11, 2024.
This poor result appears to stem from ill-timed purchases and sales, with the biggest inflows coming after bitcoin had already streaked higher (in 2024’s first quarter and again in the first half of 2025), followed by redemptions in more recent periods amid a downturn in the cryptocurrency’s price, effectively locking in losses.
Crypto ETFs: Growth of $10,000 Versus Monthly Net Flows (Jan. 11, 2024–June 30, 2026)
Source: Morningstar Direct; author’s calculations. Data as of June 30, 2026. Limited to spot bitcoin ETFs in Morningstar’s digital assets category that existed as of Jan. 11, 2024.
The takeaway:Beware the narrative. The launch of crypto ETFs was heralded as the democratisation of bitcoin, widening access for a broader swath of investors. This would, as the story went, buttress demand, lifting bitcoin prices still higher. But by the time most ETF investors piled into crypto, bitcoin had already risen, arguably because the market had anticipated the higher demand and priced it in. That is, they bought into a story that had already played out.
