The Average Investor: How Emotions Could Cost $26,725
Emotional decisions could cost the average investor $26,725. We arrived at this amount by examining the posted returns for US equity mutual funds and equity exchange-traded funds (ETF’s) and compared them to the average investor returns discussed in the annual “Mind The Gap” study published by Morningstar (link below).
We applied a hypothetical $100,000 investment made at the start of the period discussed in the report (1/1/2016) and held through 12/31/2025. In this time frame, US equity mutual funds and ETF’s posted a 9.9% compound annual return.
But the average investor saw an 8.7% return over the same time frame.
Of course, your “mileage may vary,” and past performance is no guarantee of future results. Also keep in mind, as well, many (most) investments involve risk, including the potential loss of principal.
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Transcript for The Average Investor: How Emotions Could Cost $26,725
Your emotions may have cost you $26,725.
And in the next few minutes, I’m going to show you how we get to that number.
Every year, Morningstar produces a report called “Mind the Gap.”
It’s a great report.
Me – and the guys – pore through this every single year here at the office.
And if you visit the Morningstar website, you can subscribe and see this report every year as well.
We say it’s an excellent report because it gives us clues regarding investor behavior.
If you’re new here, my name is Tom Mullooly.
I own a financial planning firm in Wall Township, New Jersey, and I work alongside my three sons, who are all CFPs, like me.
Morningstar’s recent report, which came out in August 2026, showed the results from a 10-year period, January 2016 through the end of last year, 2025.
The biggest takeaway I can share with you is US mutual funds and exchange-traded funds earned 9.9% compounded annually over the last 10 years.
That’s 2016 through 2025.
But the average investor, however, invested in US mutual funds and exchange-traded funds, earned in the same window of time, 8.7% compounded annually.
Now, some people may look at this and say, “Well, I’m happy that I made money during that timeframe!”
Or say, “Well, I got most of the return. I got maybe 87% of that return. Seems pretty good.”
And for the record, we’re not saying you had to invest in the S&P 500, or “this fund” or “that fund.
We’re just talking about stock investments through mutual funds and exchange-traded funds, ETFs.
Did the investments earn 9.9% per year in a straight line?
No, of course not.
Uh, there were years like 2018 where very few people made money.
There, uh… 2020, we went through COVID, and at one point, we saw prices down 25 and 30%.
We went through 2022, where interest rates were being raised aggressively, and we saw prices at some point down 20%.
So we certainly didn’t earn 9.9% every single year in a straight line.
But the average annual return for this 10-year timeframe worked out to be 9.9%.
However, and unfortunately, investors have an emotional trigger built into their systems.
And this made some folks move money in and move money out at different times over that 10-year span.
This moving in and moving out of different investments wound up costing them money.
So let me put this in dollar terms so this becomes clear for everyone watching.
Suppose you invested $100,000 at the start of 2016.
And this compounded annually for 10 years in US mutual funds and exchange-traded funds at 9.9%.
This gave you a total value of $257,026 at the end of this 10-year timeframe.
However, the average investor saw different results.
The average investor’s money compounded at the same timeframe at 8.7%.
Do the math, and that $100,000 compounds to $230,301.
Still good. We’re not complaining, but there’s a difference.
What it costs the average investor over this time period is $26,725.
This is not fees!
It’s what emotions cost the average investor.
The money that’s invested in US mutual funds and exchange-traded funds should be invested for long-term growth.
It’s not a short-term trade.
And it’s not a place to park some money for a little while.
But this is what folks do.
And this is a big reason why they come in to meet with us and say silly stuff like, “I never made a nickel in the stock market.”
For the record, if you think BOND investors will behave differently……. well, we’re going to disagree.
In the very same report, it’s mentioned the average bond fund, this is bond funds and bond exchange-traded funds, bond ETFs, returned, in the same ten years, 2016 through 2025, 3% annually over that 10-year time span.
Now…… think back to the early part of this time span that we’re talking about.
We had near 0% interest rates.
However, the average investor, here we go again, in a bond fund or a bond ETF, a bond exchange-traded fund, returned just 2.1% annually over the same 10-year time span.
That’s actually worse – in percentage terms – than the stock investors we just talked about.
When we allocated a portion of your assets to bonds back in 2016, rates, interest rates were near zero.
But these investments wound up averaging, over time, 3%.
The focus for money that gets allocated to bonds and bond ETFs should be the return OF your capital, not the return ON your capital.
The money that we allocate towards bonds should be there to fund the next year, two, or three of your expenses.
That’s because we don’t know what the market’s going to hand us over the next year, two, or three.
So we want to have that money sitting in bonds.
This is EXACTLY why we drill down into what to expect….. in terms of your expenses and your cash flow.
We don’t want to be in a place where we need to sell some of your growth investments, especially when the market is down.
These are exactly the topics we cover with our clients every single week.
Click the link in the description below the video.
It’ll take you to a page on our website where you can book some time with us, talk to our team, and see if we can help.
And to understand why we focus so much on “data gathering” when we’re getting started with you, watch this video next…..
