Mind the Gap

Brew

| Aug 2025

MIND THE GAP

A recent report from Morningstar, Mind the Gap 2025, highlights an important lesson for investors: the returns your funds generate aren’t always the same as the returns you actually experience.

Over the 10 years ending December 31, 2024, the average dollar invested in U.S. mutual funds and ETFs earned 7.0% annually, compared to the funds’ reported 8.2% total return (Exhibit 1). That 1.2% annual shortfall—about 15% of potential gains—was largely due to when investors chose to buy and sell.

Why the Gap Exists

There are several drivers of this gap:

Behavioral Biases: Many investors buy after markets rise and sell after they fall—decisions driven by emotion rather than strategy.
Volatility: More volatile funds had larger gaps, as investors struggled to stay invested through ups and downs.
Trading Activity: Frequent switching between funds often eroded returns instead of improving them.

Interestingly, portfolios that stuck with a diversified approach tended to produce narrower gaps, reinforcing the value of a steady, disciplined approach.

How Your Advisor Helps Close the Gap

The findings highlight the critical role of professional advice. A financial advisor helps you:

Stay Disciplined by keeping long-term goals front and center during frothy or turbulent markets.
Build Diversified Portfolios that reduce volatility and promote consistent outcomes.
Avoid Costly Mistakes by acting as a behavioral coach to prevent panic selling or chasing performance.
Maintain Alignment through systematic rebalancing instead of reactive trading.

The Bottom Line
Morningstar’s research makes clear that investment success isn’t only about picking the right funds—it’s also about how you interact with them. Partnering with your advisor provides the structure and discipline to help you capture more of your portfolio’s true potential. By bridging the gap between market returns and investor returns, you can invest with greater confidence and peace of mind. Please don’t hesitate to reach out to your advisor with any questions on your portfolio or financial plan.

MARKET BACKDROP

ASSET CLASS SUMMARY
As of 8/19/2025

Asset Class	1 Month	3 Month	YTD	1 Year	3 Year	5 Year	10 Year
U.S. Stock	+1.75%	+7.69%	+9.38%	+15.65%	+15.86%	+14.68%	+13.28%
Global Ex U.S.	+3.16%	+8.05%	+22.65%	+18.52%	+14.69%	+9.58%	+7.50%
U.S. Bond	+1.24%	+2.44%	+4.49%	+2.66%	+2.46%	-0.79%	+1.71%
Global Bond	+0.61%	+2.07%	+6.69%	+3.23%	+2.66%	-1.86%	+1.09%
U.S. Real Estate	+0.28%	+0.81%	+4.40%	+2.63%	+1.66%	+6.60%	+5.97%

SECTOR SUMMARY
As of 08/19/2025

Cyclical	1 Month	3 Month	YTD	1 Year	3 Year	5 Year	10 Year
Consumer Cyclical	+2.88%	+6.43%	+1.26%	+24.87%	+12.87%	+9.71%	+12.65%
Financials	+0.11%	+2.27%	+9.70%	+21.41%	+16.73%	+18.66%	+12.22%
Materials	+0.92%	+4.71%	+9.19%	+1.66%	+6.87%	+9.93%	+9.53%
Real Estate¹	-0.40%	-0.10%	+4.10%	+2.36%	+1.30%	+6.95%	+6.79%

Sensitive	1 Month	3 Month	YTD	1 Year	3 Year	5 Year	10 Year
Comm. Services	+5.85%	+13.39%	+15.93%	+30.84%	+27.16%	+15.74%	+12.48%
Energy	-0.79%	+1.88%	+1.26%	-3.71%	+6.05%	+23.25%	+6.73%
Industrials	-0.06%	+5.24%	+15.64%	+20.25%	+17.19%	+16.51%	+12.73%
Technology	+1.60%	+14.42%	+13.90%	+20.14%	+27.39%	+22.01%	+23.64%

Defensive	1 Month	3 Month	YTD	1 Year	3 Year	5 Year	10 Year
Consumer Defensive	+2.39%	+0.71%	+8.13%	+7.82%	+7.17%	+9.51%	+8.95%
Health Care	+3.70%	+2.23%	+0.30%	-9.58%	+2.68%	+6.80%	+8.01%
Utilities	+2.79%	+4.97%	+15.34%	+18.26%	+6.81%	+11.02%	+10.12%

Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: Consumer Cyclical (S&P 500 Consumer Discretionary (Sector) Total Return), Financials (S&P 500 Financials (Sector) Total Return), Materials (S&P 500 Materials (Sector) Total Return), Real Estate (S&P 500 Real Estate (Sector) Total Return¹), Comm. Services (S&P 500 Communication Services (Sector) Total Return), Energy (S&P 500 Energy (Sector) Total Return), Industrials (S&P 500 Industrials (Sector) Total Return), Technology (S&P 500 Information Technology (Sector) Total Return), Consumer Defensive (S&P 500 Consumer Staples (Sector) Total Return), Health Care (S&P 500 Health Care (Sector) Total Return), Utilities (S&P 500 Utilities (Sector) Total Return).

1) The index Launch Date is Sep 19, 2016. All information for an index prior to its Launch Date is hypothetical back-tested, not actual performance, based on the index methodology in effect on the Launch Date. Back-tested performance reflects application of an index methodology and selection of index constituents with the benefit of hindsight and knowledge of factors that may have positively affected its performance, cannot account for all financial risk that may affect results and may be considered to reflect survivor/look ahead bias. Actual returns may differ significantly from, and be lower than, back-tested returns. Past performance is not an indication or guarantee of future results. This back-tested data may have been created using a “Backward Data Assumption”. For more information on “Backward Data Assumption” and back-testing in general, please see the Performance Disclosure.

This article is for informational purposes only and is not intended as individual investment advice or as a recommendation of any particular security, strategy or investment product. Investing involves risk including the potential loss of principal. SEIA is not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas. Past performance is not indicative of future results. Signature Investment Advisors, LLC (SIA) is an SEC-registered investment adviser; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Securities offered through Signature Estate Securities, LLC member FINRA/SIPC. Investment advisory services offered through SIA, LLC, 2121 Avenue of the Stars, Suite 1600, Los Angeles, CA 90067, (310) 712-2323. The information provided in this article is for general informational purposes only and does not constitute professional advice. Individual results may vary, and it is important to consult with a qualified professional before making any financial or legal decisions. For details on the professional designations displayed herein, including descriptions, minimum requirements, and ongoing education requirements, please visit seia.com/disclosures. SIA does not accept time-sensitive, action‐oriented messages or transaction orders, including orders to purchase or sell securities, via electronic mail.

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