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Sound Advice: April 22, 2026

Do the recent five-year returns from market index funds vary widely?

They can vary, but not as wildly as it might seem from headlines—most broad, low‑cost market index funds with similar mandates cluster fairly tightly over five‑year periods, with bigger gaps only when the underlying exposures differ meaningfully.​

When returns are similar

Among funds that track the same index (e.g., multiple S&P 500 index funds), five‑year differences are usually small, often within roughly 0.2–1% per year, driven mainly by expense ratios, tracking error, and tiny implementation differences. Over a full five‑year span that might add up to a couple of percentage points in cumulative performance, but not tens of percentage points.​

When returns diverge more

Five‑year returns do spread out once you compare funds tracking different parts of the market:

  • U.S. large‑cap vs U.S. small‑cap.
  • U.S. vs developed ex‑U.S. vs emerging markets.
  • Equity vs bond index funds.

Because those segments have had very different annual results (e.g., big swings in equities vs more muted bond returns in the same years), the compounded five‑year numbers can diverge quite a bit, sometimes by double‑digit percentage points cumulatively.​

How to think about it as an investor

  • Within a given asset class and index, focus on costs and tracking quality, not performance differences, because the underlying index drives almost all of the return.
  • Across different index types, expect five‑year returns to be meaningfully different and make sure the mix you look at matches your actual allocation, not just one headline index.

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