Definition of Foregone earnings:
Foregone earnings represents the difference between earnings actually achieved and the earnings that could have been achieved with the absence of fees, expenses, or lost time. Foregone earnings represents the investment capital that the investor spent on investment fees. The assumption is that if the investor had been exposed to lower fees, there would have been a better return. The concept of foregone earnings is typically used when referring to sales charges, management fees, or total expenses paid to funds.
The difference between earnings actually achieved and those that could have been obtained had circumstances and choices been different (e.g., if there had been fewer costs involved, less fees, little loss of time, etc.). In investment terms, the concept of foregone earnings concentrates on the difference in smaller fees. Over an extended period of time, recurring fees can be a significant drag on the value and growth of an investment instrument. This can also be true of one time fees if these are too large.
Foregone 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 fund (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.
How to use Foregone earnings in a sentence?
- Foregone earnings represent the difference between an investment's actual earnings and the earnings that could have been realized had there been no fees.
- Foregone earnings, therefore, are the investment capital that the investor spent on investment fees.
- The concept of foregone earnings assumes that investors exposed to lower fees earn better returns in the market.
- Sales charges and operating fees, incurred by an investor in a mutual fund, are examples of investment fees that lead to foregone earnings.
Meaning of Foregone earnings & Foregone earnings Definition