Most investors understand how returns compound. A modest annual return, left alone for long enough, does most of the work of building wealth.
Far fewer appreciate that fees and taxes compound too, and in the same direction. Every percentage point paid away in management fees, platform charges, trading costs or unnecessary tax is not simply a cost in the year it is incurred. It is also the return that money would have earned in every year that follows. Over a multi-decade horizon, the difference between a low-cost, tax-aware portfolio and an expensive, actively traded one is rarely a rounding error. It is often a material share of the final outcome.