what are foregone earnings 
foregone earnings represent the difference between earnings actually achieved and the earnings that could have been achieved with the absence of fees expenses or lost time as such a large portion of foregone is represented by the amount that the investor spent on investment fees which often make up a sizable percentage of investment earnings the assumption is that if the investor had been exposed to lower fees they would have automatically earned a better return the concept of foregone earnings is typically used when referring to sales charges management fees or total expenses paid to funds understanding foregone earningsforegone earnings as they relate to investment performance can cause a big drag on the long term growth of assets and investments fees are usually charged to investors for access to mutual funds exchange traded funds etfs and other pooled investment vehicles mutual funds are actively managed funds meaning they re a collection of securities bought and sold by a portfolio manager etfs are passively managed funds meaning they typically track an index such as the s p 500 and therefore have lower fees than mutual funds something as seemingly innocent as a front end load or a 1 management fee can cost thousands of dollars as the years pile up thanks to the wonders of compound returns investors must research the costs associated with each investment to limit foregone earnings foregone earnings are a type of opportunity cost or the cost of missing out on a better choice or opportunity thus leaving money on the table examples of foregone earnings mutual fundssales charges can be a significant expense for investors the financial industry regulatory authority finra provides the following schedule which outlines potential front end load sales charges for investing in mutual funds 1 the table below shows the hypothetical breakpoints as examples where mutual fund sales charges might be reduced based on the amount of funds invested sales charges can occur at various points in the investment process sales charges are commissions charged by distributors that compensate the broker for sales below are three examples of the types of sales charges and when they occur 1individual investors are typically charged lower fees when trading with a discount broker and many platforms may not require any sales charges to be paid sales charges can also often be bypassed by investing through the fund company directly sales charges for transactions through intermediaries are determined by the mutual fund some mutual funds provide investors with a breakdown of returns with and without sales charges for example the clearbridge aggressive growth fund reports returns with and without sales charges as of august 31 2022 the fund s average one year return without sales charges was 25 33 with sales charges the return was 29 62 whereby the difference of 4 29 represents foregone earnings due to sales charges 2the above example shows how much foregone earnings can impact the return on an investment breakpoint discounts can significantly reduce sales charges and fees allowing more of the investment s gains to be reinvested or compounded leading to better long term returns it s important for investors to research and perform due diligence on a mutual fund s breakpoint discounts to determine if you qualify and if so determine the requirements investors will also experience foregone earnings from mutual fund operating fees mutual fund operating fees typically encompass management fees distribution fees transaction fees and administrative costs a mutual fund may report a gross expense ratio and a net expense ratio that includes these fees if a net expense ratio is quoted then the fund has waivers and reimbursement agreements in place over time the fund s expense ratio typically increases to its gross expense ratio when the discounts expire investors can consider management fees and gross versus net expense ratios when comparing funds for foregone earnings passively managed funds typically have lower expense ratios than actively managed funds actively managed funds require higher management fees and transactions costs for example let s say you have 10 000 to invest and one fund charges 0 5 while the other fund charges 2 both funds offer exposure to a similar segment of the market if you invested in the 2 fund your investment return would decrease by 200 annually investing in the 0 5 fund only charges 50 if you chose to invest in the 2 fund your foregone earnings from fund fees would be 150 in total redemption fees may also be charged by mutual funds to prevent investors from short term trading these fees are determined by the fund company their timeframes for payment can range from 30 to more than a year after the initial purchase depending on the issuer redemption fees are paid back to the fund for trading and operational costs avoiding redemption fees can also be a factor helping to reduce the potential for foregone earnings 