What Morningstar’s 2026 Mind the Gap Study Reveals About Investor Results

The average dollar invested in US mutual funds and exchange-traded funds earned 8.7% a year over the decade through 31 December 2025, trailing the funds’ 9.9% annual total return by 1.2 percentage points. That gap, Morningstar’s recurring Mind the Gap study shows, is not a performance problem—it is the cost of investors buying and selling at the wrong moments.

The standout bright spot was US equity funds. The average dollar in US stock funds and ETFs gained 12.8% a year, capturing virtually all of the group’s 13.3% annual return. Because US equity funds held $5.8 trillion in net assets at the start of the period, this near-perfect capture meant investors collectively added more than $12 trillion in wealth—by far the largest generation in any fund decade on record.

At the other extreme, the study’s new case study on cryptocurrency ETFs paints a sobering picture. From the first listings in January 2024 through June 2026, the average dollar invested in crypto ETFs lost about 5.8% per year, even though the funds themselves returned 8.5% annually. That 14‑point gap means ill-timed cash flows—heavy buying after bitcoin had already surged and redemptions during the subsequent downturn—effectively destroyed value.

Allocation funds, including target-date strategies, again showed smaller return gaps, benefiting from systematic contributions and built‑in rebalancing that insulate investors from emotional trading. The study also confirmed a persistent link: the more volatile a fund category, the larger the gap investors typically experience.

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Why US Equity Investors Succeeded While Crypto ETF Buyers Stumbled

A decade of staying calm rewarded US equity investors

US stock fund investors did little to damage their own results. Morningstar attributes this to the sheer heft of workplace retirement accounts and a broad buy-and-hold culture. The funds were not simply “good”—the behaviour around them was remarkably benign. Regular paycheck contributions, automated top‑ups, and reluctance to trade on headlines let the power of compounding work almost uninterrupted.

Even the most successful fund categories in the data owed a large part of their outcomes to investor temperament rather than just fund management. The 1.2‑point gap across all US funds is consistent with long‑run averages, but the near‑zero gap for US equities is exceptional and likely reflects both a rising market and disciplined behaviour reinforcing each other.

The crypto ETF gap: a 14‑point cautionary tale

Crypto ETFs were supposed to democratise bitcoin, but the data tells a different story. The largest inflows hit in early 2024, after bitcoin had already spiked, and again in the first half of 2025 when the cryptocurrency was rallying. As prices fell later, investors pulled money out, locking in losses. By buying high and selling low, they turned an 8.5% annual fund return into a negative 5.8% personal experience.

Morningstar researchers say the market had largely priced in the demand boost before most ETF buyers arrived. The narrative of “wider access will push prices higher” had already been discounted, so the late‑comers bought into a story that had played out. This is a textbook example of the damage that trend‑chasing can do when combined with an extremely volatile asset.

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Why volatility keeps widening the gap

The relationship between volatility and return capture is now deeply entrenched. Funds with smoother return paths—such as allocation strategies and many target-date series—saw modest gaps. More volatile areas, including those newly studied (buffer ETFs, leveraged single‑stock ETFs, and crypto funds), all tended toward larger negative gaps. The lesson is not to shun volatility altogether, but to accept that streakier investments demand far greater resolve and a clear plan, because the size of price swings will test the impulse to act.

Five Concrete Rules for Your Own Portfolio After Another Mind the Gap Report

  • Avoid discretionary, ad‑hoc trading. The study’s core finding is that reacting to recent events erodes real‑world returns. Where possible, regiment purchases with dollar‑cost averaging and use systematic withdrawal plans—behaviours that kept the US equity gap to just 0.5 percentage points.
  • Hold fewer, broadly diversified funds that do the heavy lifting. Investors in allocation funds captured more of the underlying returns because the funds handle rebalancing and adjust the mix over time. The same approach in a regular brokerage or IRA account can reduce the temptation to jump between strategies.
  • Be especially cautious with volatile, story‑driven assets. The 14‑point gap in crypto ETFs shows that narratives—no matter how compelling—are poor guides to timing. If you own highly volatile holdings, commit to a fixed‑schedule entry and exit plan, and resist the urge to pile in after a rally.
  • Use the “volatility screen” on new and existing holdings. When evaluating any fund, ask whether its historical price swings are large enough to trigger an emotional response. A lower‑volatility fund that you can stick with is often worth more in your pocket than a higher‑return fund you’ll mistime.
  • Keep your US equity strategy boring and automatic. The behaviour of US stock fund investors—large regular contributions, minimal tinkering—was the single biggest reason they generated more than $12 trillion in wealth. That same boring discipline can be replicated in a taxable or IRA account simply by setting up recurring investments into a low‑cost, broad‑market fund.