This article is educational and is not investment advice; performance and expense ratio data are as of December 31, 2025 unless a fund-level figure is labeled with a 2026 date inline.
TL;DR — Quick Verdict
- S&P Dow Jones Indices found 79% of active large-cap U.S. equity funds underperformed the S&P 500 in 2025 — worse than the 65% rate in 2024, and the fourth-worst result in the scorecard’s 25-year history.
- Over 20 years through December 2025, 92.89% of active large-cap funds trailed the S&P 500 after fees.
- The Investment Company Institute puts the 2025 asset-weighted expense ratio at 0.64% for actively managed equity mutual funds versus 0.05% for index equity mutual funds — a 0.59 percentage point gap.
- Our model: $250,000 held 30 years at a 7% gross return produces $1,887,122 in a 0.03% index fund (Vanguard’s VOO) versus $1,589,607 in a fund charging 0.64% — a $297,515 difference.
- Recommendation: default to a broad index fund for U.S. large-cap exposure and reserve active management for categories where Morningstar measured genuinely higher long-term success rates, such as intermediate-core bonds.
Ninety-two point eight nine percent. That is the share of actively managed U.S. large-cap funds that failed to beat the S&P 500 over the 20 years ending December 31, 2025, according to S&P Dow Jones Indices. The number is not a fluke of one bad market — it is the result of a fee structure that compounds against you every single year you hold the fund.
Most comparisons of index and active funds stop at that headline. This one does not. Below you will find the actual expense ratios charged by Vanguard, Fidelity, Schwab, and two of the largest active funds in the country; the full underperformance table by holding period; a decade-by-decade look at one active fund that genuinely won; and original modeling showing what the fee difference costs in dollars on a real portfolio balance. The goal is a decision framework, not a slogan. Index funds win on cost with near-certainty. Whether they win on outcome depends on which asset class you are buying, how long you hold, and what you would otherwise pay.
What Index and Active Funds Actually Cost in 2026
Cost is the one variable in this comparison that is known in advance. Everything else — returns, manager skill, market conditions — is a forecast. The Investment Company Institute’s March 2026 report on fund expenses puts the 2025 asset-weighted average expense ratio at 0.64% for actively managed equity mutual funds and 0.05% for index equity mutual funds.
Those averages hide enormous spread. ICI reports the median equity mutual fund expense ratio at 0.99% in 2025, with the 90th percentile at 1.84%. Meanwhile the cheapest mainstream S&P 500 trackers charge two to four basis points. Anyone evaluating a specific holding should run an expense ratio comparison across fund providers rather than rely on a category average.
Category averages and medians for 2025 from ICI, Trends in the Expenses and Fees of Funds, 2025. Fund-level expense ratios as published by Vanguard, Fidelity, Schwab, and Capital Group and reported by fund data providers as of mid-2026. Annual cost column calculated by Real Cost Report.
Note what the last column does to the argument. A $250,000 balance in the average active equity mutual fund gives up $1,600 a year before the manager has picked a single stock. The same balance in FXAIX gives up $38.
The Performance Record by Holding Period
Short horizons produce noisy results. Long horizons do not. S&P Dow Jones Indices publishes underperformance rates — the share of funds in a category that trailed the assigned benchmark — corrected for survivorship bias, meaning funds that were liquidated or merged mid-period are counted in the denominator rather than quietly dropped.
That correction matters more than most investors realize. Of the 760 active large-cap funds that existed 20 years before December 2025, only 34.61% still existed at the end. Roughly two out of three vanished, and comparisons built only on survivors flatter the category badly.
Underperformance rates based on absolute return, data as of December 31, 2025. One-year figures as stated in the scorecard summary; multi-year figures from Report 1a and Report 6a. Source: S&P Dow Jones Indices, SPIVA U.S. Scorecard Year-End 2025.
Small-cap active managers had a strong 2025, with only 41% trailing their benchmark. Stretch the window to two decades and the advantage evaporates: 90.28% fell short. The same collapse appears in every category and it appears in international portfolios too, which is worth weighing against the case for international diversification costs and benefits.
Fidelity Contrafund vs. Fidelity 500 Index: Which Is Better for a 30-Year Holding Period?
Skeptics of the index case point to funds that clearly won. Fidelity Contrafund is the strongest available example, and it deserves a fair hearing rather than a dismissal.
Using calendar-year returns published in Fidelity’s own fund fact sheet, Contrafund beat the S&P 500 in six of the ten years from 2016 through 2025. Compounding those returns, $10,000 invested at the start of 2016 grew to $47,446 in Contrafund against $39,833 in the benchmark — an annualized 16.85% versus 14.82%. That is 2.03 percentage points of annual excess return, net of a 0.74% expense ratio. Real skill, measured over a real decade.
Now the other column of the ledger. The 2022 drawdown was 28.26% for Contrafund against 18.11% for the index, a ten-point gap in a single down year. On a $250,000 balance the fee difference against FXAIX runs $1,812.50 annually. And Contrafund is one fund out of the 806 active large-cap funds S&P DJI tracked at the start of 2025 — the exception that the 92.89% twenty-year underperformance rate is measuring around, not against.
The decisive question is not whether outperforming managers exist. They plainly do. The question is whether you can identify them before the fact, and S&P DJI’s persistence research found that among top-half domestic equity funds in 2021, large-cap results over the next four years came in below what random chance would predict.
Verdict
For a 30-year holding period in a taxable account, FXAIX is the better default. Contrafund’s 2.03 percentage point annualized edge from 2016 to 2025 is genuine but was not predictable in 2016, and the 0.725 percentage point expense ratio gap is certain in advance while the alpha is not. Investors who already hold Contrafund in a tax-deferred account have a reasonable case for keeping it; investors buying fresh exposure today should not pay 0.74% for a coin flip with negative expected value.
What Determines Whether an Active Fund Wins
Three forces decide the outcome, and only one of them is stock-picking talent.
Cost comes first. Morningstar’s Year-End 2025 Active/Passive Barometer found that over the ten years through 2025, 31% of active funds in the cheapest fee quintile of their category beat their average passive peer, against 17% for the priciest quintile. Nearly double the odds, purchased entirely with a lower expense ratio. The mechanism is arithmetic rather than mysterious, and it is the same one that drives the long-term cost of investment fees.
Market structure comes second. S&P DJI documented that only 30% of S&P 500 constituents outperformed the index in 2025, while the top five stocks contributed 78% of the benchmark’s return in the first quarter. When returns concentrate that heavily, a manager who trims the largest positions on valuation grounds loses ground mechanically — an effect that also shapes S&P 500 historical return data by decade.
Taxes come third, and they are routinely ignored. S&P DJI’s After-Tax Scorecard for year-end 2024 found the median active large-cap core fund trailed the S&P 500 after tax over every horizon measured, by as much as 4.4% annually. Active funds turn over holdings and distribute realized gains whether or not you sold anything. Structure matters here as much as strategy, which is why the ETF versus mutual fund cost and tax efficiency question deserves separate attention, alongside rebalancing without triggering taxes.
What Most People Get Wrong
Four errors show up repeatedly, and each has a measurable price.
Mistake 1: treating a low expense ratio as the whole cost. Consequence: a Class A share purchase can lose 5.75% off the top before compounding begins. Growth Fund of America Class A carries a 5.75% maximum front-end load alongside its 0.59% expense ratio. On a $50,000 purchase that is $2,875 gone immediately; after 30 years at a 7% gross return, $47,125 net of load compounds to $303,896 against $377,424 for the full $50,000 in a 0.03% index fund. Correct action: check the share class and the load schedule, not just the expense ratio.
Mistake 2: assuming bear markets favor active managers. Consequence: overpaying for downside protection that does not appear. S&P DJI noted that 2025 delivered the highest S&P 500 dispersion since 2009 — theoretically ideal conditions for stock selection — and still produced the fourth-worst large-cap result in scorecard history. Correct action: judge managers on full-cycle data, not narrative, and treat recession investing and market timing history as an empirical question.
Mistake 3: reading a category-wide success rate as your fund’s odds. Consequence: buying the wrong active exposure. Morningstar’s fixed-income cohort posted a 42% ten-year success rate, the best of any group tracked, with intermediate-core bond managers at 55% for 2025. U.S. large-cap ranked among the weakest. Correct action: apply active management selectively where the category record supports it, and think about fixed income allocation and return trade-offs on their own terms.
Mistake 4: switching funds after a bad year. Consequence: you convert temporary underperformance into permanent loss and often trigger a tax bill doing it. Contrafund’s ten-year record required holding through a 28.26% decline in 2022. Correct action: set the allocation once and understand the documented cost of behavioral finance mistakes before acting on a drawdown.
Who Should Index, Who Should Not
Default to index funds for U.S. large-cap equity. The twenty-year underperformance rate of 92.89% and the 0.59 percentage point average expense ratio gap make this the clearest call in the data. Our model on a $250,000 balance over 30 years at a 7% gross return produces $1,887,122 at 0.03% against $1,589,607 at 0.64% — a $297,515 difference, and $447,179 if the comparison fund charges the 0.99% category median.
Consider active management in three situations. If your 401(k) menu has no low-cost index option, a cheap active fund in the bottom fee quintile is the better available choice. If you hold intermediate-core bonds, Morningstar’s 55% one-year success rate for 2025 gives the category a defensible record. And if you hold an appreciated active fund in a taxable account, the capital gains bill from switching may exceed decades of fee savings — run that math before selling.
Index passively but allocate deliberately. A 0.03% expense ratio does nothing for a portfolio holding the wrong mix, so pair the cost decision with a considered view of asset allocation by age. Investors who want the allocation handled automatically should compare target-date fund costs and convenience value — ICI reports a 0.27% asset-weighted average expense ratio for target date mutual funds in 2025, a reasonable price for automatic rebalancing.
One final piece of context on scale: index mutual funds and index ETFs held $19.3 trillion at year-end 2025, or 52% of long-term fund assets, up from 19% in 2010. The debate is largely settled in practice.
Frequently Asked Questions
Is a 0.64% expense ratio actually expensive?
Relative to the alternative, yes. The 0.64% figure is ICI’s 2025 asset-weighted average for actively managed equity mutual funds, against 0.05% for index equity mutual funds. On a $250,000 balance that is $1,600 a year versus $125. Compounded over 30 years at a 7% gross return, the gap reaches $297,515 in our model.
Do any active funds beat the index consistently?
Some do. Fidelity Contrafund returned an annualized 16.85% from 2016 through 2025 against 14.82% for the S&P 500, per Fidelity’s published calendar-year returns. But S&P Dow Jones Indices found that among top-half domestic equity funds in 2021, large-cap persistence over the following four years fell below what random chance would produce.
Why do index ETFs cost more than index mutual funds on average?
ICI reports 0.14% for index equity ETFs versus 0.05% for index equity mutual funds in 2025, driven by two factors. Index domestic equity mutual funds made up 83% of index equity mutual fund assets versus 69% for ETFs, and the average long-term index mutual fund held $14.6 billion against $6.2 billion for the average index ETF.
Should I sell an active fund I already own?
In a tax-deferred account, switching costs nothing and the fee math is straightforward. In a taxable account, a large embedded capital gain can outweigh years of savings — a 0.61 percentage point annual fee gap takes many years to recover a sizable tax bill. Calculate the gain and your bracket before acting; this is not general advice.
How We Researched This Article
Performance data comes from the SPIVA U.S. Scorecard Year-End 2025, published by S&P Dow Jones Indices on March 3, 2026, with data as of December 31, 2025. We used Report 1a for underperformance rates on an absolute-return basis, Report 2 for survivorship, and Report 3 for equal-weighted annualized fund returns. SPIVA sources fund returns from the CRSP Survivor-Bias-Free US Mutual Fund Database and classifies funds using the Lipper system, correcting for survivorship bias by using the opportunity set at the start of each period as the denominator. Fund returns are net of fees but exclude loads. After-tax figures come from the SPIVA After-Tax Scorecard Year-End 2024, the most recent edition available at publication.
Expense ratio data comes from ICI Research Perspective Vol. 32, No. 1, released March 2026, which calculates averages on an asset-weighted basis and excludes funds of funds and variable annuity options. Success rate data comes from the Morningstar US Active/Passive Barometer Year-End 2025, covering roughly 9,248 funds and about $26 trillion in assets. Morningstar’s success rate and SPIVA’s underperformance rate are different metrics measuring related questions; we have kept them labeled separately throughout.
Fund-level expense ratios were taken from provider documents where available and from fund data providers where not, and are labeled as of mid-2026. All dollar projections are modeled, not measured: they assume a constant 7% gross annual return, no contributions, no taxes, and no rebalancing, and are illustrations of fee drag rather than return forecasts. The Contrafund decade analysis is our own calculation from Fidelity’s published calendar-year returns. Limitations: expense ratios change, category averages conceal wide dispersion, and a 20-year record cannot establish that the next 20 will resemble it. Research conducted July 2026.
All figures were verified against named primary sources before publication.