Investors often do worse than the investments they own, largely because of timing: money tends to flow into funds after prices have risen and out after they have fallen. Researchers call the difference the "behaviour gap" or "investor return gap". This explainer sets out what the studies find, where they disagree, and why 2026 is a live test for millions of new investors in Indonesia and the region.

What the research shows

Morningstar: "Mind the Gap" 2026

Morningstar's annual Mind the Gap study, published on 6 August 2026, covers US mutual funds and ETFs over the 10 years to 31 December 2025. It found that the average dollar invested earned 8.7% a year, against a 9.9% aggregate total return for the funds themselves. That 1.2-percentage-point gap is equivalent to around 12% of the funds' return, and Morningstar attributes it to "the timing and magnitude of investors' purchases and sales".

The gap varied by type of fund, according to the full report:

Fund group (10 years to Dec 2025) Investor return Fund total return Reported gap
US equity 12.8% 13.3% −0.4 pts
Allocation (mixed) 7.8% 8.4% −0.7 pts
International equity 7.8% 8.9% −1.1 pts
Sector equity 9.4% 10.6% −1.2 pts
Alternative 2.6% 4.1% −1.6 pts

Gaps are as reported by Morningstar and may not equal the simple difference because of rounding.

"The less volatile the fund, the smaller the gap tended to be," the report says: about 0.4 points a year for the least volatile fifth of funds, against more than 2.0 points for the most volatile fifth. ETFs showed a wider gap (1.6 points) than traditional mutual funds (1.2 points).

DALBAR: a smaller gap in 2025

DALBAR's 2026 Quantitative Analysis of Investor Behavior, released on 16 April 2026, found the average US equity fund investor earned 17.16% in 2025, against 17.88% for the S&P 500. The 0.72-point gap was the third smallest since 1985. Bond fund investors fared worse, with a gap of 4.89 points.

Barber and Odean: trading is costly

In a study of 66,465 households at a US discount broker from 1991 to 1996, Brad Barber and Terrance Odean found the households that traded most earned 11.4% a year, against 17.9% for the market. Their conclusion, as the paper's title put it: "trading is hazardous to your wealth".

A dissenting view

A 2026 Financial Analysts Journal paper by Jon Fulkerson, Bradford Jordan, Timothy Riley and Qing Yan argues that Morningstar's method mixes genuine timing mistakes with a statistical side-effect of how returns are measured. They estimate poor timing costs only about 0.10% a year, against the 1.2% shortfall in an earlier Morningstar edition, according to the University of Arkansas. The gap's existence is widely accepted; its size is debated.

The biases behind it

  • Recency and extrapolation. People expect recent trends to continue. Robin Greenwood and Andrei Shleifer found that investor surveys of expected returns are "highly positively correlated … with past stock returns", yet negatively correlated with what models predict. Optimism peaks after rises, which is when buying peaks.
  • Loss aversion. Daniel Kahneman and Amos Tversky's prospect theory showed that people's value function is "generally steeper for losses than for gains". Losses hurt more, which can push investors to sell in a slump. A related pattern, the "disposition effect", sees investors sell winners too early and hold losers, which Odean found in a study of 10,000 brokerage accounts.
  • Attention and FOMO. Barber and Odean found that individual investors are net buyers of "attention-grabbing" stocks, those in the news or with unusual trading volume or extreme one-day returns.
  • Herding. Following friends or social media tips amplifies all of the above.

Indonesia: a fast-growing, young investor base

The number of Indonesian capital market investors (single investor identifications, or SIDs) rose from 14.87 million at the end of 2024 to 20.12 million by 19 December 2025, according to KSEI data reported by Pasardana. It then passed 30 million in August 2026, a rise of 9.9 million this year, Bisnis reported, and reached 31.13 million by the end of August, according to KSEI data cited by Katadata Databoks. About 99.8% are individuals.

In KSEI's December 2025 data, 18.99 million of 20.12 million investors held mutual funds. Stock investors numbered 10.05 million in early August 2026, up 16.8% this year, according to IDX figures cited by Kabar Bursa. The base is young: 54% of investors are under 30, Bisnis reported in April. Retail investors accounted for 52% of average daily trading value early in 2026, IDX's then acting president director Jeffrey Hendrik said in February, according to BCA Sekuritas.

The 2026 stress test

Many of these investors joined during a strong run. The IHSG rose 22.13% in 2025 and closed the year at 8,646.94, Bisnis reported. By 2 October 2026 it had fallen to 6,036.89, according to Katadata, a decline of about 30% (NDNews calculation). That is the scenario the research warns about: buying after a rise, then facing pressure to sell after a fall. Analysts urged retail investors not to panic-sell during the June slide, Investortrust reported.

Hasan Fawzi, OJK's chief executive for capital market, derivatives and carbon exchange supervision, put the herding risk plainly in April: "Don't just follow others. Don't buy straight away just because a friend says it's good." He added: "Invest according to your means, don't use debt. If you force it, when prices fall you may be forced to sell at a loss." (NDNews translation, Bisnis, 9 April 2026.)

Elsewhere in ASEAN

Thailand faces the opposite test. The SET was up 26.6% this year by the end of August, with retail investors making up 30.8% of trading value that month and foreign investors 55.3%, Kaohoon International reported. Rising markets carry their own risk: late buyers chasing gains often capture less of them. In Vietnam, almost 1.8 million trading accounts were opened in January to July, taking the total above 13.65 million, Tuoi Tre News reported. For the wider economic contrast, see our Indonesia vs Thailand comparison.

What the research points to

  • Regular investing. Vanguard's research found a lump sum beat gradual "cost averaging" about 68% of the time historically, but cost averaging still beat holding cash 69% of the time and can limit regret in a downturn, "thus preserving commitment to the investment plan". For salary earners, automatic monthly contributions are one common way to do this.
  • Diversified, less volatile core holdings. In Morningstar's data, US equity and allocation funds had narrower gaps than sector and alternative funds.
  • Scheduled rebalancing. Allocation funds keep a set asset mix; investors holding several funds can restore their target mix at fixed intervals rather than in reaction to news.
  • Less trading and no borrowing to invest. Barber and Odean's data link heavy trading with lower returns, and borrowed money can force a sale when prices fall, as OJK's Hasan Fawzi warned.

What to watch

  • Monthly KSEI and IDX data, to see whether investor growth holds up while the IHSG is down.
  • Whether retail investors stay invested through the November MSCI review covered in our ASEAN markets outlook.
  • The academic debate over how large the gap really is.

Key numbers

  • 1.2 points: Morningstar's annual investor return gap, 10 years to 2025
  • 0.72 points: DALBAR's US equity investor gap in 2025
  • 31.13 million: Indonesian capital market investors, end-August 2026
  • 10.05 million: Indonesian stock investors, early August 2026
  • About −30%: IHSG change from end-2025 to 2 October 2026
  • +26.6%: SET gain to end-August 2026

This is general information, not financial advice.

This article was researched with AI assistance and reviewed by the NDNews editorial team. It is based on official data and media reports as of 7 October 2026. It is not financial advice.