How to use the investment fee calculator
- Enter your starting balance and what you add each year.
- Enter the gross annual return before fees and the annual fee as a percent of your balance. Combine a fund expense ratio and any advisory fee into one number.
- Enter the number of years. Optionally add a second fee to compare two funds or two advisors.
- Read the balance with and without fees, the fees paid, the fee drag and the difference between the two fee levels.
Formula
Grown balance = balance x (1 + gross return)
Fee = grown balance x fee rate
New balance = grown balance - fee + contribution
Fee drag = balance with no fees - balance with fees
Contributions are added at the end of each year, so they earn nothing and pay no fee in the year they arrive. The fee is taken from the balance after growth.
Worked example
Start with $25,000, add $6,000 a year, assume a gross return of 7%, and run it for 30 years. With no fees the balance is $757,071.09. With a 1% fee it is $609,314.85.
You pay $72,953.94 in fees, but the fee drag is $147,756.24, or 19.52% of the no-fee balance, because every fee dollar also stops earning returns. At a 0.1% fee the balance is $740,649.14, which is $131,334.29 more than at 1%.
Why fees compound against you
A fee is a percent of the whole balance every year, so it grows as your account grows. The fee also removes money that would have earned returns for the rest of the period. Over long horizons the lost growth can be larger than the fees themselves, which is why the fee drag above is about twice the fees paid.
What counts as a fee
Add the fund expense ratio, any advisor or platform charge based on assets, and any other percent of balance fee. Per-trade commissions, account fees in dollars, and sales loads work differently and are not modeled. Check your statements and fund documents for the exact figures, since this tool uses only the number you type.
Comparing two options
The second fee field runs the same contributions and returns with a different fee. This is useful when you compare funds with different expense ratios, but it assumes the gross return is the same, which may not be true of two different investments. For a simpler growth projection use the compound interest calculator or the 401k calculator.
Assumptions and limits
- The gross return is the same in every year, and the fee is a fixed percent of the balance after growth.
- Contributions are made at the end of each year. Contributing earlier in the year would raise both balances slightly.
- Taxes, dollar fees, trading costs and changes in fees over time are not modeled. All rates are values you enter and the defaults are examples.
- Money is rounded half up to the cent in the results. The yearly table shows whole dollars.
Frequently asked questions
How much do investment fees cost over time?
It depends on the fee, the return and the years. In the example above a 1% fee on a 7% gross return removes about 19.5% of the final balance over 30 years.
What is the difference between fees paid and fee drag?
Fees paid is the sum of the yearly charges. Fee drag is the gap between the balance without fees and with fees, which also includes the growth those fee dollars would have earned.
Is a fee subtracted from the return or taken from the balance?
Here it is taken from the balance after the year's growth. Subtracting the fee from the return gives close but not identical figures, and the difference is small at low fees.
Does a lower fee always mean a better investment?
No. This tool holds the gross return fixed to isolate the effect of the fee. Two investments can earn different returns before fees, and past returns do not predict future ones.