What it is
Turnover measures how much of a portfolio is replaced over a year.
Turnover = lesser of (total bought, total sold) / average portfolio value
A turnover of 100% means, on average, every holding was replaced once during the year.
Why it matters
- Trading costs: spreads and slippage on every trade.
- Taxes: selling winners in a taxable account realises gains, often at short-term rates. See Capital gains tax on investments.
- Backtest gap: many backtests assume free, perfect trades. The higher the turnover, the bigger the gap between the backtest and real results.
Typical ranges
| Portfolio | Annual turnover |
|---|---|
| Total market index fund | Under 5% |
| S&P 500 index fund | About 2 to 5% |
| Active mutual fund | 50 to 100% |
| Monthly-rebalanced rules strategy | 100 to 400% |
| Daily-signal strategy | Often above 1,000% |
Keeping it down
Rebalance less often, use bands (only trade when a weight drifts by more than a set amount), and hold high-turnover strategies in tax-advantaged accounts.
See also
- Capital gains tax on investments How US capital gains tax works for stocks and ETFs: short-term versus long-term rates, when gains are taxed, tax-loss harvesting and tax-advantaged accounts.
- Expense ratios and fund fees What an expense ratio is, how fund fees are charged, how much a 1% fee costs over decades, and typical expense ratios for index and leveraged ETFs.
- How to read a backtest Which numbers in a backtest report to trust, which to question, a checklist for spotting unrealistic results, and how to compare a strategy with a benchmark.
Pages that link here: Frontrunner strategies, Index funds, Momentum investing, Overfitting in investing, Systematic investing, What is backtesting?
Last updated September 30, 2026. Education only, not investment advice.