If you’re looking into investing in mutual funds, you’ll want a sense of the average mutual fund return before making any moves. In 2019, mutual funds in seven broad categories have averaged a return of roughly 13%.
It is more than double the average annual return over the past 15 years. Here’s a breakdown and what you need to know as you assess your options. Here are several things to know about average mutual fund return.
Look at Long-Term Returns
Historical returns can provide reasonable expectations about the growth of an investment overtime although there is no guarantee of future results.
The average annual return over the past 15 years is the one of the more reliable gauges of future performance.
The thing you need to highlight is using the S&P 500 Index as a benchmark, stocks have had an average annual return of nearly 13% over the past 10 years and about 9% over the past 15 years.
The 15-year figure is a more realistic predictor of future performance because it includes the most recent correction, the bear market of 2008.
Choose a Benchmark
As there are many different types of mutual funds, it’s best to make apples-to-apples comparisons with a suitable benchmark.
Another benchmark is the average performance for a particular category of mutual funds. A Large Growth fund is the categorization of a a large-cap stock fund.
Category returns are more reflective of actual results because the returns factor in the expense ratios. It stands for how much an investor pays for the operation of the fund. Indexes, on the other hand, do not reflect expenses.
Consider Returns by Category
Mutual funds invest primarily in stocks, bonds or cash (or some combination). Within each asset class, there are multiple categories. For instance, stock funds can be organized by market capitalization (large-cap, mid-cap, etc.), by country or region, or by business sector, such as healthcare or technology.
By using Morningstar, Inc, the average mutual fund returns are categorized for seven major categorizes. For all mutual funds, including index funds, within the respective category. The 3-,5-,10-, and 15-year figures represent the average annual return over given time periods.
How Mutual Funds Compare to Other Investments
The average annualized return is 6%-7%, well below the average for 2019. But even using the longer-term perspective, mutual funds outpace inflation and outperform other types of investments, including certificates of deposit (CDs), 10-year U.S. Treasury bonds, and gold.