What’s the average mutual fund return?

As you build your investment portfolio, you may consider adding mutual funds to the mix. Looking at average mutual fund returns first can help you decide where to invest your money.

Average mutual fund returns — and how to estimate your own

The average mutual fund return for 2021 was 10.16%. However, average returns aren’t this cut and dried. For a more accurate estimate, you need to look at two factors.

1. Types of assets held in the fund

Average mutual fund returns vary significantly based on the range of assets held in the fund. For example, large-cap stock mutual funds that mimic the S&P 500 saw an average gain of 27.01% last year. Meanwhile, long-term bond mutual funds had a -2.66% loss.

2. Historical time period you’re looking at

Historical time periods also affect average mutual fund returns. Last year, mutual funds as a whole had an average return of around 10.16%. But when you zoom out to a 15-year time period, that average drops to 6.39%.
Same goes for long-term bond mutual funds: While this type of fund had an average return of -2.66% last year, its 15-year average is 6.19%.

Annualized vs. annual return

You’ll often see mutual fund returns expressed as annual returns or annualized returns:

• The annual return of a mutual fund is its average gain or loss over a one-year period.
• An annualized return is the average gain or loss over a multiyear period.

Say a fund has an average return of 10% in Year 1. Its annual return is 10%.
Now let’s say that the same fund has an average return of 5% in Year 2, 8% in Year 3 and -2% in Year 4. Its annualized return over that four year period would be 5.25%:
(10 + 5 + 8 + -2) / 4 = 5.25%

Average mutual fund returns in 2021 and over the long term

This table breaks down average mutual fund returns by category. We use Vanguard index mutual funds to calculate each average.

How to calculate your mutual fund’s annual return

If you don’t want to use an online calculator, you can calculate a mutual fund’s annual return with this formula:
(ending fund price – beginning fund price) / beginning fund price = annual return
Say a mutual fund cost $100 on January 1 and $125 on December 31. Its annual return would be 25%:
(125 – 100) / 100 = 0.25 or 25%

Mutual funds vs. other investments

Here’s a closer look at how average mutual fund returns compare to ETFs, stocks and CDs:

• Mutual funds vs. ETFs. Mutual funds and ETFs usually have similar returns. However, mutual funds can have higher fees because they’re actively managed by experts, instead of passively managed by you.
• Mutual funds vs. stocks. In general, stocks may have higher returns than mutual funds. But they carry more risk, because they lack diversification.
• Mutual funds vs. CDs. Even the best CD rates top out around 1%, so you’ll likely find higher returns with mutual funds. That said, CDs can’t lose value like mutual funds can, so they’re worth considering against your goals.

4 factors to consider before choosing a mutual fund

Mutual funds can be a great part of any retirement planning strategy. Before you invest in them, check these items off your to-do list:

1. Review long-term returns. While past performance is no indicator of future results, it can be helpful to look at how a particular mutual fund has performed over the past 15 years or so.
2. Choose a benchmark. A benchmark gives context to how a mutual fund is performing relative to the index it’s in. For instance, if the S&P 500 returns 8% and a large-cap stock fund returns 10%, then the fund has an “above average” return for its benchmark.
3. Look at returns by category. Say you’re looking at large-cap stock mutual funds. How does the one you’re interested in compare to other large-cap funds? Knowing these stats can help you choose the best mutual fund for you.
4. Understand expense ratios and other fees. An expense ratio tells you how much you’ll pay per year for a mutual fund. For instance, a 0.5% expense ratio means you’ll pay $5 for every $100 invested. Also understand the six other mutual fund fees to watch out for.

5 steps to invest in a mutual fund

You can invest in a mutual fund in minutes online using these five general steps:

1. Open an online brokerage account if you don’t already have one.
2. Research which mutual fund you’d like to buy.
3. Search for that mutual fund in your trading platform.
4. Select the number of shares you want to buy.
5. Follow the on-screen instructions to complete your order.

Compare trading platforms

You’ll need a brokerage account to invest in mutual funds. Use this table to compare your options and find the best platform based on features, fees and investor feedback.

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Name	Product	Available asset types	Stock trade fee	Minimum deposit	Signup bonus
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Firstrade Firstrade		Stocks, Bonds, Options, Mutual funds, ETFs	$0	$0	Get up to $200 in transfer fee rebates when you open an account and transfer at least $2,500 in securities	Firstrade customizable trading platforms let you manage your account and trade from your desktop, iPad or mobile phone.	Go to site More Info		loading Fetching your data...
EOption EOption		Stocks, Options, Mutual funds, ETFs	$0	$0	N/A	Go to site More Info		loading Fetching your data...

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