The Mind the Gap study has been conducted by Morningstar’s research teams since 2005. The study looks at the returns that investors achieve compared to investment returns. The difference is mostly down to behavioural tendencies that often lead us to act irrationally.

We all inherently know to buy low and sell high. In practice, this is not what many investors do. We often ‘follow the herd’ by investing in shares, ETFs and funds that have done well recently. This is buying high. We also often sell when markets or individual holdings drop. This is selling low. To see an example of this in practice look at the annual Superannuation performance results. The best performing superfunds have inflows immediately after these results are released.

The result of this poor behaviour is a ‘behavioural gap’ in investment returns.

All six markets studied had a negative investor return gap over the period. What this means is that the investors’ timing of entering and exiting the market detracted from performance and their performance lagged the performance of the underlying investment. A hypothetical buy and hold investment fared better.

Mind the Gap annualised returns


Investors in Australia and the UK suffered the smallest losses due to poor timing. The study suggests that this is because of the prevalence of more holistic financial advice in these markets. It is more common in other markets to have funds sold as isolated products.

In previous studies, Australia had a positive investor return. This was in the period between 2013-2018 – a healthy bull market. Investors did not have shaky markets to deal with, and this helped with investor performance. This has now turned negative, as investors struggle with the volatility.

However, there’s another large reason why Australia has traditionally performed better than other countries. Superannuation.

Many countries have retirement savings accounts and programs. However, the compulsory enrolment and the outsourcing of investment management from superannuation funds to funds management companies means that the superannuation system has an inextricable link to aggregate investment and investor returns in Australia.

There are a few lessons that investors can take from these results to apply to investments outside of superannuation or investors who have self-managed super funds with more discretion over the timing of investments.

The Mind the Gap study centres around the negative impact of poor behaviour on your investment returns.

Invests at regular intervals

Superannuation is invested at regular intervals and if you are a salaried employee, it will be a consistent amount. It is invested regardless of whether you think the market is overvalued or undervalued. It is invested if markets are volatile or calm or if there is a bull or bear market.

Consistently investing in the market over decades without the temptation to time the market means that you will be invested for the maximum amount of time and will not be trying to make tactical allocations.

Consistently investing outside of super can do the same thing. Reducing the tendency to try to maximise your wealth and simply investing at regular intervals will mean you have more time in the market and avoid speculative behaviour. This strategy can keep you focused over the long-term.

Minimises tax

The primary benefit of investing in super is the favourable tax rates. Tax has a significant impact on your total return. I’ve written an article on the impact of tax over the lifetime of an investment here. It shows the impact of capital gains taxes and taxes on income on an investment portfolio. I modelled out a scenario with a $100,000 initial investment and $1,000 invested each month over 20 years. The result was a portfolio worth $1,391,009. However, that is before taxes. You would pay $180,000 in tax on income and an additional $170,000 in capital gains tax.

Poor behaviour – switching in and out of investments, or speculative trading will lead to even more taxes. This is a further $290,000, which accounts for unnecessary taxes and transaction costs that are incurred.

It is easy to see how investing in superannuation minimising taxes. And while the tax environment is not as beneficial outside of super an investor will benefit from trying to minimise taxes.

There are a few ways that you’re able to do this. The first is by understanding which vehicle may work best for you from a tax perspective – investing as an individual, a company or a trust.

The second is by limiting poor behaviour and investing for the long term. Superannuation keeps investors focused on the long-term because you are unable to withdraw the funds unless you meet a very narrow set of requirements. My colleague Mark LaMonica has written an article about how he has no intention on selling his investments.

Poor behaviour

We are hardwired to want to seek the best returns possible. Preventing poor behaviour involves knowing yourself and your goals. From there, you’re able to set up a portfolio with your goals in mind. It means that you are able to avoid situations where you are just blindly trying to beat the market, or your mates, or any other benchmark that doesn’t relate to your financial goals. Creating an Investment Policy Statement (IPS) can help to guide your decision making.

Limited investment options

In the superannuation industry in Australia, most investors are in retail or industry superfunds. This may also contribute to why Australian investors have performed well in the Mind the Gap study. The majority of superannuation funds partly outsource management to third party fund managers for certain asset classes. For example, if you look at the AustralianSuper Balanced Fund, they have invested in managed funds from companies such as Ardea, Oaktree and State Street Global Advisers.

However, what most people are choosing between are names such as ‘Conservative’, ‘Balanced’, ‘Aggressive’ and so on. The clearcut choices for many Australians means that they are able to pick an investment and stick with it for the long-term.

The issue for many investors when they are investing outside of super is that they want to be in the best performing investment option at all times. The Morningstar’s asset class gameboard shows the best performing asset classes in each calendar year. The frequent changes mean that an investor chasing returns will make constants changes to a portfolio. If an investor switches from investment to investment, or asset class to asset class chasing returns, they will pay more in transaction, tax and investment costs. They will also earn lower returns as another asset classes takes over with the top returns.


 Annual Asset Class Returns - Calendar Year

To limit performance chasing create a list of parameters and investment criteria that suit your goals. This will guide your decision making.

The second suggestion is to create a wishlist. Find investments that fit your criteria, that may not be at the right price or you may not have the funds to purchase. Invest consistently with your existing investments, and the predetermined investments that fit the criteria in your investment strategy. Artificially limiting your options may help you make better decisions and help to tune out the noise of the ‘best investments’ to make in the moment.