To find out how well a mutual fund or exchange-traded fund has performed over a certain period, you typically look at total return.

That number bakes in a few assumptions. Namely, that you put a chunk of money into the fund and let it sit there the entire time, periodically reinvesting any dividends that may have come in.

Of course, that’s not how real people invest. After you buy a fund, you might end up adding a few more shares if the fund gets hot. Or maybe you sell a chunk if you find another investment you like better.

For this reason, even if you’ve held a fund for a decade, the 10-year return you see on your portfolio page is unlikely to match the official return on the fund’s website. And, on average, investors’ returns are lower than those of the funds they own.

Over the 10 years ended December 2024, the average dollar invested in U.S. mutual funds and ETFs returned an annualized 7%, according to Morningstar’s 2025 “Mind the Gap” study. Over the same period, those funds returned 8.2%, on average.

Put another way, over the course of the decade researchers analyzed, investors lost out on about 15% of their returns.

That 1.2 percentage-point difference is what Morningstar researchers call the “investor return gap.” In general, it can be attributed to investor behavior, says Jeffrey Ptak, managing director for Morningstar Research Services.

“Literally, it would be buying high and selling low,” Ptak says.

The most obvious examples of self-destructive behavior from investors come during market extremes, Ptak says, with over-exuberant investors piling into the market when stocks have already shot up and panic-selling when the market hits the skids.

But the kind of behavior that leads to long-term underperformance “could be much more mundane than that,” he says. It just may be a coincidence of timing that you buy a fund before a few of its holdings decline in value. Or maybe you sell to raise money for something else, and the fund takes off.

Morningstar’s data isn’t a perfect roadmap for maximizing returns from the funds you own, but it does potentially highlight a few possible strategies for keeping more of the money your funds earn. But remember: Experts recommend talking with a financial professional before making any major changes to your investing strategy.

Avoid taking on too much risk

As a rule, investments that come with a higher level of risk also offer higher returns. Among professional investors, this is known as the risk “premium.”  But if you have a highly volatile fund in your portfolio, the data shows that you’re less likely to realize that fund’s full potential.

“More volatile funds are harder for investors to succeed with than less volatile funds,” Ptak says. “And that was true even when we were controlling for fund type.”

Across all types of mutual funds and ETFs, investors in the least volatile quintile of funds experienced a return gap of 0.4%, compared with a 2% gap among the most volatile funds.

It’s impossible to draw a precise conclusion as to why that is, but it’s not hard to believe that financial psychology plays a role, Ptak says. Theoretically, the jumpier a fund’s performance, the more tempted an investor might be to panic and sell when things get bad.

“Somebody could be following the theory and think, I’ll invest in [riskier assets] that pay you a premium return,” Ptak says. “That’s all well and good, but if you can’t hang on, you aren’t going to be getting any sort of risk premium. On the contrary, you’ll probably have a gap.”

Invest deliberately

Morningstar’s data tends to support the idea that investors who take a hands-off, buy-and-hold approach generally have a smaller gap than people who trade more frequently.

Case in point: Among the different types of funds researchers analyzed, allocation funds — which largely consist of target-date funds — produced the lowest investor gap on average, just 0.1 percentage point.

The reason for the small gap likely comes down to how these funds, which are designed to grow more conservative as you age, are commonly held: in long-term retirement accounts.

The best way to keep your investing gap narrow, Ptak says, is to invest in a diversified portfolio and automate your trading as much as you can to avoid discretionary or emotional trading.

“Less is more,” he says. “The less transacting you have to do, the better off you’re going to be.”

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