October 22, 2017

Average Mutual Fund Return

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Investors earned an average of 4.67% on mutual funds over the last 20 years. This is 3.52% less than the average S&P 500 index return.

Read this shocking report to learn even more news about mutual funds.

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Mutual Fund Returns

  1. What is the average mutual fund return?
    The 20-year return on mutual funds averages 4.67%. The actual return varies based on the funds chosen and time in the fund.

  2. What is the average mutual fund return for the last 5 years?
    Mutual funds provided an average return of 6.92% over the last 5 years. This is around 3% less than the S&P 500 index over the same period.

  3. What is the average mutual fund return for the last 10 years?
    The average 10-year return on mutual funds is just about 0.66% less than the S&P 500 index return over the same period. Mutual funds provided a 4.23% return while the S&P 500 provided a 4.895% average return.

  4. What is the average mutual fund return for the last 30 years?
    The S&P 500 index provided a 4.3% higher return than mutual funds over the last 30 years. Mutual funds had a 3.66% average return, while the S&P 500 had a 7.952% return.

Average Return on Other Investments

  1. What is the average annual return of the stock market?
    Historically, the average S&P 500 index return is around 10%.

  2. What is the average rate of return on a 401K?
    According to Christine Benz of Morningstar, investors should count on an average 5% return on their 401K. Over the last 5 years, that's around 5% less than the average S&P 500 index return. While it sounds dismal, it's because many investors err on the side of caution. They don't aggressively invest in stock when dealing with retirement money. They apportion some of their investment in less risky bonds and mutual funds.

Average Cost of Mutual Funds

  1. What are the average ongoing expenses of a mutual fund?
    Since 2000, ongoing expenses have dropped 36% from 0.99% to 0.63%. An easier way to view it is for every $100 invested, investors pay $0.63. So a $10,000 investment would cost $63.

  2. What are the average mutual fund fees?
    Mutual fund fees differ based on the type of investment. The most common are actively managed mutual funds and index funds. Actively managed funds incur higher costs because they require a professional manager to make daily decisions on their behalf. Index funds, however, track the corresponding index. This removes the management fee, thus lowering the mutual fund fees.

  3. What is the average mutual fund expense ratio?
    The average mutual fund expense ratio across all mutual funds dropped to 0.57%. This is a 4% drop from the prior year and is in part due to the demand for lower cost mutual funds.

  4. What is the front-end load?
    Investors pay a front-end load when they buy into a mutual fund. It's like a sales commission. The maximum fee is 8.5% of the investment. The broker takes the commission directly out of the investment.

  5. What is the back-end load?
    Investors pay this cost when they sell the mutual fund shares. It's a way to entice investors to stay in the investment. Investors can invest the entire amount of their principal on the front-end with a back-end load. Commission is paid when the investment is sold.

  6. What is a no-load mutual fund?
    A no-load mutual fund doesn't charge a commission. The entire amount of the principal gets invested in the fund. The fund is purchased directly from the investment company.

  7. What are 12b-1 fees?
    Another word for 12b-1 fees are annual fees. They cover the advertising and sales expenses of maintaining the fund.

  8. What other fees may a mutual fund charge?
    Mutual funds may also incur the following fees:

    • Management fees: Cover the fund's management
    • Reinvestment or fees: Pay for the cost of reinvesting dividends into the fund
    • Exchange fee: Pays for the costs of changing from one fund to another
    • Miscellaneous fees: Pay for administration or custodial services

Expectations for Mutual Fund Investments

  1. Which index should mutual fund returns follow?
    Generally, investors try to mimic the return of the S&P 500. The S&P 500 has offered an average return of 8.19% over the last 20 years.

  2. What is a "good" return on a mutual fund?
    No two investors will have the same answer. The investment goals and market conditions determine good from bad. Mutual funds are meant to be a "long-term" investment. A long-term investment can often ride out the ups and downs.

Investing in Mutual Funds

  1. What is the minimum amount required to invest in mutual funds?
    Each mutual fund will require a different minimum. Most commonly, though, investors need between $500 and $3,000.

    It is possible, however, to find mutual funds that require as little as $100. Charles Schwab is famous for their low investment requirements. This is a great way for beginning investors to get their foot in the door.

  2. When do mutual funds trade?
    Mutual funds trade once per day after the market closes. Generally, the trade will post by 6PM on the trade day. The amount charged is determined after the market closes, though.

  3. How much are penalties for withdrawing from a mutual fund?
    Mutual funds that are part of a retirement account incur a penalty for early withdrawal. The only exception is if the fund is moved into another investment within the retirement account. Taking any cash out of the fund will result in a tax liability and an early withdrawal penalty.

General Mutual Fund Statistics

  1. How many mutual funds are there?
    In 2016, there were 8,066 mutual funds in the United States.

  2. How many mutual funds enter the market each year?
    In 2016, a total of 439 new mutual funds became available. This is 161 fewer mutual funds than originated in 2015.

  3. How many mutual funds leave the market each year?
    In 2016, almost an equal number of mutual funds left the market. A total of 426 mutual funds liquidated, which is an increase from just 290 the year before.

The Types of Mutual Funds

  1. What are fixed income mutual funds?
    Mutual funds that provide returns on a regular basis are fixed income funds. The most common fixed income mutual funds invest in bonds, CDs, and Treasury bills. The rate of return is usually much lower on the fixed income funds.

  2. What are equity mutual funds?
    These mutual funds put most of their money in stocks. This makes them less stable (stocks fluctuate more), but with the potential of a higher rate of return.

  3. Are long-term or short-term funds more common in mutual fund investing?
    In 2016, most of the mutual fund investments were long-term funds. Of those long-term funds, 56% were invested in stocks.

Bottom Line

Mutual funds have seen highs and lows over the years. Knowing the full implication of the investment can help investors decide what is right for their investments.

Sources and References:

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