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Net return after fees — why net matters and how to compute it. Net return is the investment return remaining after subtracting fees, commissions, and other costs. For funds, the expense ratio directly reduces gross returns; for active strategies, performance must beat higher fees on a consistent basis to justify the cost. Over time, net return—not gross—drives ending account value because compounding multiplies the net growth factor each period. Calculating future value requires using the net return as the growth rate in the compound interest formula: FV = PV × (1 + net_return)^n. That’s why a seemingly small fee differential can produce large dollar differences over decades.

Practical evaluation, tax effects, and real-world considerations. When comparing funds, calculate expected FV under different net return scenarios to quantify the dollar impact. Don’t forget taxes—turnover can create taxable gains in taxable accounts and erode net returns further. For retirement accounts, focus more on expense ratios and less on turnover since tax drag is reduced. Also consider hidden or indirect costs like bid-ask spreads and market impact for large orders. Use low-cost index funds for broad exposure and reserve active, higher-fee strategies only when evidence supports persistent after-fee outperformance.

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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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