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Small return differences over long horizons — why they add up. The example comparing 7.00% vs 6.50% annual returns highlights that even 0.5 percentage point differences compound into meaningful dollar gaps over decades. Because compounding multiplies each year’s return into the next period’s base, that small gap grows exponentially. For long-term goals such as retirement, choosing lower-cost funds (or strategies with slightly higher expected net returns) can materially affect your outcome.

How to evaluate and act on fee/return differences. When evaluating funds, focus on net-of-fee expected returns and historical persistence only when it’s meaningful. For long-term passive exposure, prefer low-cost index funds; for active strategies, require consistent track records of after-fee outperformance before paying higher fees. Also consider portfolio-level effects: a small improvement in net return across your entire portfolio (not just a single holding) compounds into a far bigger benefit over many years. Practical step: calculate future values under different net-return scenarios to see the dollar impact, and choose the option that aligns with your risk tolerance and investment plan.

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By Quiz Coins

Trying to time the market is difficult; historically, consistently staying invested has outperformed frequent market timing attempts.

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