How much return do index funds really generate?

ETFs can help you build wealth over the long term. But how much return is really realistic? We’ll show you what you can expect – with examples and calculations.

ETFs are a good way to increase your money despite low interest rates. But how high are the yields, also called returns, that you can actually count on? How have these special equity funds developed over the past few years? And what do you need to consider when calculating the ETF return? An overview.

What is the return on ETFs?

Since ETFs are a special form of equity fund, their return – as with individual stocks – is not fixed. On the contrary, it fluctuates from year to year and that quite considerably.

In the case of ETFs, a computer algorithm replicates a certain stock index such as the Dax. In general one can therefore say: Every year, ETFs give you roughly the same return as the index that they track.

However, you have to deduct the costs from this. In the case of ETFs, these are usually running costs of around 0.2 to 0.5 percent per year as well as one-off acquisition and sales costs of up to 0.25 percent.

They usually do better with them than with funds that a manager actively stocks with shares or other securities. The higher costs of these actively managed funds usually mean that the return of actively managed funds is often lower than that of ETFs.

Why is low cost important?

A calculation example by the economist and financial advisor Gerd Kommer shows the difference the level of costs makes:

Suppose you invest 100 euros in an actively managed fund at running costs of 2 percent per year and 100 euros in an ETF with running costs of 0.5 percent per year. If both the active fund and the ETF generate an average annual return of 8 percent, the ETF will bring you one and a half times the return after 30 years, as the following tables show:

What return does an ETF achieve on the MSCI World in the long term?

The MSCI World is an international one Stock indexwho developed the more than 1,600 stocks from 23 industrialized countries maps. It is one of the most important stock indices worldwide and has been calculated by the US financial services provider Morgan Stanley International (MSCI) since 1970.

All ETFs offered in Germany map the so-called MSCI World Netto on a euro basis. This has one from 1975 to the end of 2019 average annual return of 9 percent achieved.

According to a study by the “Finanztip” portal, the best ETFs managed to reproduce this performance – with a gap of around 0.2 percentage points after deducting costs. So you could Make no loss with an ETF on the MSCI Worldif you’ve been invested any 15 years over the past few decades.

With an investment period of 15 years, however, the level of return differed depending on when investors bought or sold the ETF. On average, the annual return was 7.9 percent, in the best case more than 14 percent, in the worst case only 1.3 percent.

Here is an overview of the results of the “Finanztip” study:

Danger: Historical returns have virtually no predictive value for future returns. Nobody can predict exactly how stocks will develop in the next few decades. It is all the more important that you diversify your investment broadly and invest it over the long term (at least ten, better 15 years) in order to reduce the risk of loss. Both work best with an ETF savings plan.

What lowers the ETF return?

Three factors reduce the return on almost every investment:

  1. costs
  2. Taxes
  3. inflation

ETF costs:

As already described above, the costs of ETFs are comparatively limited. Nevertheless, when choosing the ETF that is right for you, you should make sure that the ETF is not too expensive. Because even small differences can have a strong long-term effect.

The most important key figure here is the so-called Total expense ratio, in English too Total Expense Ratio (TER), called. It shows all running costs per year in percent. The following applies: Your annual return falls by the percentage points of the TER. For ETFs, the TER is usually between 0.2 and 0.5 percent.

Further costs may be incurred Transaction costs As a rule, up to 0.25 percent per purchase or sale and possibly fees for the deposit.

Taxes on ETFs:

Since 2018, all mutual funds – including ETFs – have been taxed using the same logic. Your custodian calculates the annual withholding tax of 25 percent plus solidarity surcharge and possibly church tax automatically based on a certain formula and also transfers the taxes directly to the tax office.

There is no tax at all on income below EUR 801 (EUR 1,602 for married couples). You can get back the money you paid too much through your tax return or you can send an exemption order directly to your custodian bank.


Not only fees and taxes nibble on returns, inflation is also causing them to shrink further. Inflation means that goods and services get a little more expensive over time. So, with the same amount of money, you can buy less. This phenomenon doesn’t stop at your ETF return either.

According to the Federal Statistical Office, the average annual inflation for the past 28 years at 1.71 percent. The inflation will further reduce your return by roughly these percentage points. It is all the more important that you do not let your money go to waste in your savings book, current account or call money account, but invest part of it – because you usually get returns that are higher than inflation and far higher than the current very low interest income .


Related Articles

Back to top button