The Hidden Reason Investors Miss Out on Fund Returns: New Data on How Behavior Shapes Wealth
Morningstar’s Mind the Gap 2025 study found that most investors don’t capture the full returns their funds deliver. The funds themselves perform fine, but because investors often buy or sell at the wrong times, their personal returns end up lower than the fund’s published results.
The Core Finding: A Return Gap That Adds Up
Over the decade ending December 31, 2024, the average fund delivered a time-weighted return of 8.2% per year. Yet, investors actually earned just 7.0% annually due to poor timing in their buy and sell decisions—resulting in a 1.2 percentage point annual gap.
That 1.2% might not seem like much—until you consider its long-term impact. Over 20 years, a $100,000 investment earning 10% annually could grow to $673,000. But with a 1.2% lag, it only reaches $540,000—a nearly 20% difference in wealth.
What Drives the Gap?
Morningstar identifies two main culprits:
Emotional Timing: Many investors buy when markets are peaking or sell amid downturns. These mistimed moves often mean missing rebounds or locking in losses.
Volatility and Fund Type: The gap is widest in sector equity funds, where emotions run hotter and price swings are larger. Conversely, allocation funds—including target-date or balanced portfolios—keep gaps minimal, sometimes just 0.2 percentage points, because they promote stability and auto-rebalancing.
Morningstar also finds that funds with more erratic cash flows (sudden inflows or outflows) and greater tracking errors compared to benchmarks tend to produce wider investor return gaps.
What It Means for You: Simple, Consistent Investing Pays Off
The Morningstar report, and most financial experts as well, stress two points for people looking to maximize returns:
Trade Less: Minimize emotional buys and sells. Let strategy guide your decisions.
Use Simple, Diversified Funds: All-in-one allocation funds (like target-date strategies) help investors capture nearly all of a fund’s returns because they automate decisions like rebalancing and discourage ad hoc trades.
Your Brain Just Isn’t Wired for Easy Financial Decision Making
Human brains evolved to avoid danger and chase rewards—great instincts for survival, but terrible instincts for investing. Markets move fast, headlines stir emotions, and our natural bias is to do something in response.
That’s why so many investors underperform the very funds they hold. It isn’t a lack of intelligence—it’s biology. The key is recognizing that money decisions are emotional by default, and building systems and guardrails that keep you from acting on impulse.
Learn more about behavioral finance with 16 Easy Ways to Outsmart Your Brain for More Wealth and Security.
The Boldin Takeaway
The Mind the Gap study is a reminder that the biggest threat to long-term wealth isn’t always the market—it’s our own behavior. Jumping in and out of funds at the wrong time quietly erodes returns, even when the funds themselves perform well.
At Boldin, we believe using the Boldin Planner is the antidote. A clear, written strategy helps you stay the course, resist emotional decisions, and capture more of the returns your money is already earning. By pairing smart investment choices with disciplined habits, you give yourself the best chance to build lasting retirement security—and the confidence to enjoy life along the way.
