In my career of analyzing investment performance, I have found that the most common question from investors is also the most dangerously simplistic: “What’s the average mutual fund return?” This question, particularly over a meaningful period like ten years, seeks a single number to describe a universe of thousands of funds with wildly different objectives, risks, and outcomes. The pursuit of this average is a fool’s errand because it masks the brutal truth of underperformance, the relentless drag of fees, and the sheer improbability of picking a winner. My aim here is to dismantle this simplistic question and rebuild it into a framework for understanding what you can realistically expect from mutual fund investing over a decade. We will move beyond the flawed concept of an “average” to explore the distribution of returns, the power of costs, and the strategies that actually lead to long-term success.
Table of Contents
The Fatal Flaw: There is No “Average” Mutual Fund
The first and most critical concept to internalize is that the “average mutual fund” does not exist. The mutual fund universe is not a homogeneous asset class; it is a collection of distinct strategies. Asking for the average return is like asking for the average climate of Earth—the number is meaningless without specifying if you’re talking about the Sahara Desert or the Arctic tundra.
A technology sector fund and a short-term government bond fund have nothing in common. Their returns over any period, especially a decade, will be vastly different. Therefore, any discussion of performance must be anchored to a specific category and, most importantly, its benchmark.
The Revealing Data: Active vs. Benchmark
Instead of a grand average, we must look at the performance of fund categories relative to their appropriate benchmarks. The most comprehensive data on this comes from S&P Dow Jones Indices’ SPIVA (S&P Indices vs. Active) scorecards, which have meticulously tracked this for over two decades.
The results are consistently humbling for active fund managers. Over a 10-year period, the overwhelming majority of actively managed funds fail to beat their benchmark index after accounting for fees.
Let’s take the most common category: U.S. Large-Cap Funds. Their benchmark is the S&P 500 Index.
According to the latest SPIVA data, over the 10-year period ending December 2023, approximately 85-90% of large-cap fund managers underperformed the S&P 500. This is not an anomaly; it is a persistent, long-term trend.
Therefore, the “average” large-cap mutual fund return is, by definition, less than the return of the S&P 500.
Quantifying the “Average” Experience
Let’s put some numbers to this. Assume the S&P 500 returned an annualized 12.0% over a 10-year period (for illustrative purposes).
The average asset-weighted expense ratio for an actively managed U.S. equity fund is roughly 0.70%. This is the fee drag.
Therefore, simply to match the index before fees, the average active fund would need to generate a gross return of 12.7%. But the data shows most fail to do even that.
A more realistic scenario for the “average” actively managed large-cap fund might be:
- Gross Return (Pre-Fee): 11.8% (a 0.2% underperformance vs. the index due to trading costs and imperfect selection)
- Minus Expense Ratio: 0.70%
- Net Return (Investor’s Reality): 11.1%
Now, let’s compare this to a low-cost S&P 500 index fund with an expense ratio of 0.05%:
- Net Return: 12.0% – 0.05% = 11.95%
The 10-Year Impact: A Calculation of Wealth
The difference between 11.1% and 11.95% seems trivial each year. But compounded over a decade, it becomes a chasm.
Assume an initial investment of \$100,000.
Scenario A: “Average” Active Fund
Net Return = 11.1%
Scenario B: Low-Cost Index Fund
Net Return = 11.95%
The Difference:
\$309,500 - \$286,500 = \$23,000The investor in the “average” active fund would have $23,000 less after ten years for the same initial investment. This is the real cost of average.
A Realistic 10-Year Return Table by Category
Based on historical market data and the fee drag discussed, here is a more realistic look at what net returns might look like over a decade, assuming a normal market environment. These are illustrative estimates, not guarantees.
| Fund Category | Benchmark Index | Realistic 10-Yr Annualized Net Return Range* | Primary Risk Driver |
|---|---|---|---|
| Large-Cap Blend Active Fund | S&P 500 | 9.5% – 11.5% | Market Volatility |
| Large-Cap Index Fund | S&P 500 | 10.0% – 12.0% | Market Volatility |
| Small-Cap Blend Active Fund | Russell 2000 | 8.0% – 10.5% | Economic Sensitivity, Liquidity |
| International (EAFE) Fund | MSCI EAFE | 7.0% – 9.0% | Currency Risk, Geopolitics |
| Intermediate-Term Bond Fund | Bloomberg US Agg Bond | 3.5% – 5.5% | Interest Rate Risk |
| Target Date 2030 Fund | Blended Benchmark | 7.0% – 8.5% | Asset Allocation Glide Path |
*Note: These are pre-tax estimates and assume reinvestment of dividends and distributions. Actual returns can and will vary dramatically based on the specific starting and ending points of the 10-year period.
The Deeper Truths Behind the Numbers
The “average” return hides two critical truths:
- Survivorship Bias: The reported “average” is skewed upwards because it only includes funds that survived the entire 10-year period. Poorly performing funds are routinely closed or merged into more successful ones, and their terrible records are erased from the database. The true average, including these failures, is even lower.
- The Distribution is Skewed: A small number of funds dramatically outperform, a large number cluster in the middle with mediocre returns, and a long “tail” of funds significantly underperform. The “average” does not capture your odds of actually picking a top performer, which are exceedingly low.
A Better Framework: How to Think About 10-Year Returns
Instead of chasing an impossible average, you should adopt a more robust framework:
- Focus on Asset Allocation: Your overall portfolio return will be determined far more by your split between stocks, bonds, and other assets (your asset allocation) than by your selection of individual funds within those categories.
- Minimize Costs Relentlessly: The expense ratio is the most reliable predictor of future net performance. Choose low-cost index funds to ensure you capture the full return of the asset class.
- Embrace Market Returns: Instead of trying to beat the market (a game most professionals lose), aim to capture the market’s return through diversification. The 10-year return of a broad total stock market index fund is the market’s return, minus a tiny fee.
- Define Your Personal “Average”: Your target return should be based on your personal financial goals, risk tolerance, and time horizon, not on a historical industry average.
Conclusion: Letting Go of the Average
The pursuit of the “average mutual fund 10-year return” is a distraction from what truly matters. The data is clear: the average experience for an investor in actively managed funds is one of underperformance relative to simple, low-cost index funds.
Your goal should not be to achieve the average return. Your goal should be to maximize your probability of investment success. This is achieved not by picking the few funds that might beat the market, but by:
- Constructing a diversified portfolio aligned with your goals.
- Minimizing fees and taxes.
- Staying disciplined through market cycles.
The most successful 10-year return is not the highest possible return; it is the one that meets your personal financial objectives with the least amount of unnecessary risk and cost. By rejecting the flawed concept of an average and focusing on the factors you can control—costs, diversification, and behavior—you position yourself not for average results, but for superior outcomes. In the long run, the market’s return, minus minimal fees, is a victory.
