For investors, it’s important to remember there’s power in patience, even as markets churn.

An average investor loses out on as much as 2.6% in annual gains by straying from a buy-and-hold strategy with certain US mutual funds and ETFs, according to a new Morningstar report.

Wealth advisers have long cautioned against attempting to time the market. And investors who sell during periods of volatility often end up sitting in cash and missing out on market rebounds.

“If you get out when the market is down 10%, it’s likely you won’t benefit from the bounce and the recovery,” said Rob Williams, managing director of financial planning at Charles Schwab. “Often you find that once you get back into the market it’s too late.”

Morningstar’s annual “Mind the Gap” report measured total returns against how an average investor did when accounting for cash flows into and out of funds over a 10-year period ending Dec. 31, 2023.

The largest gap between a fund’s total return and what the report calls the “investor return” was found in narrowly focused sector funds, which showed a negative 2.6% gap annually. This means that while the average sector fund returned 9.6%, the average investor saw a return of about 7%.

Sector funds focused on targeted industries like technology tend to be volatile. And that can lead to wider gaps on average, said Jeffrey Ptak, Morningstar’s chief ratings officer.

“There is such a thing as a fund that’s too hot to handle, and we see that expressed in the study,” he said, adding that a takeaway from the report is that “keeping it simple pays off.”

Across all mutual funds and ETFs the average gap tends to be smaller at negative 1.1%, with investors getting a 6.3% return compared to a total return of 7.3%. Still, that translates into investors missing out on about 15% of a fund's total return over 10 years.

The lowest gap observed was in allocation funds, such as target-date funds that automatically rebalance, removing yet another opportunity to mistime a market move.

The Morningstar study, released Thursday, covered more than 20,000 fund share classes, representing nearly $21 trillion in assets at the end of the study period.

This article was provided by Bloomberg News.