Is a 1% fee really that bad?

Over a full investing lifetime it typically costs somewhere between a fifth and a quarter of the final balance, depending on the return assumption and the time horizon. Whether that is bad depends entirely on what you get for it. It is certainly not negligible, which is how it is usually presented.

Does this include fund expense ratios and platform fees?

Enter the all-in figure. Add the fund's ongoing charge, any platform or custody fee, and any advice fee, then put the total in. People routinely underestimate the total because the components are disclosed separately.

Why is my result different from another fee calculator?

Almost always because of how the fee is applied. Deducting the fee from the return produces a slightly lower cost than charging it against the balance. This calculator does the latter, which is the more accurate model of a percentage-of-assets charge.

Does the calculator account for inflation?

No. Every figure is nominal. If you want the answer in today's purchasing power, run the real return calculator alongside it.

Fee Drag Calculator

Compare the same portfolio with and without an annual fee, and see how much of the final balance the fee takes over a full investing lifetime.

Your numbers

Starting amount

Monthly contribution

Annual return

Before fees and before inflation.

Annual fee

The all-in figure: fund charges plus any platform or advice fee.

Years

Fees compound, so the cost grows faster than the years do.

Paid in fees and forgone growth

$132,555

That is 19.2% of the $691,150 you would otherwise have finished with. The fee itself is 1% a year.

Final balance, no fee: $691,150
Final balance, 1% fee: $558,596
Total contributed: $190,000

Balance over 30 years. No fee against 1% a year. The gap widens because the fee is charged on a balance that keeps growing.

What this assumes

A constant annual return, contributions made at the end of each month, and the fee charged annually on the whole balance.

What it does not tell you

It does not model tax, and a higher-fee fund is not automatically worse. The question this answers is what the fee costs, not whether it is worth paying.

Why a small fee becomes a large number

A 1% annual fee sounds like it should cost you 1%. Over a single year it roughly does. The reason it ends up costing a fifth of your final balance is that the fee is charged every year on a balance that keeps growing, and the money it takes is money that would otherwise have compounded for the rest of your investing life.

The fee you pay in year one is small in absolute terms, but that amount would have had thirty years to grow. The fee you pay in year thirty is large in absolute terms but has no time left to compound. Add up every year and the total lost is far more than the sum of the fees themselves.

This is why fee comparisons expressed as percentages are so easy to shrug off, and why the same comparison expressed in currency at the end of the period tends to change people's minds.

How this calculator charges the fee

There are two conventions in common use and they disagree by about 3%. The first deducts the fee from the return, so a 7% return with a 1% fee is modelled as 6% growth. The second grows the balance at the full return and then charges the fee against the balance at the end of each year.

This calculator uses the second method, because that is how a percentage-of-assets fee is actually levied: your platform or fund charges a share of what you hold, not a share of what you earned. It produces a slightly higher cost figure than the first method, so if another calculator gives you a smaller number, this is usually the reason.

Contributions are added at the end of each month and growth compounds monthly. Tax is not modelled at all.

What the number does not settle

A higher fee is not automatically a worse deal. An adviser who stops you selling in a crash, or a fund with genuinely different exposure, can be worth more than the drag. What this calculator gives you is the price of that service, stated honestly, so the question becomes whether it is worth paying rather than whether it costs anything.

The comparison is most useful between two options doing the same job. Two broad index funds tracking the same benchmark, one at 0.07% and one at 0.85%, are close to identical products at very different prices, and that is where the arithmetic here is decisive.

Common questions

Is a 1% fee really that bad?: Over a full investing lifetime it typically costs somewhere between a fifth and a quarter of the final balance, depending on the return assumption and the time horizon. Whether that is bad depends entirely on what you get for it. It is certainly not negligible, which is how it is usually presented.
Does this include fund expense ratios and platform fees?: Enter the all-in figure. Add the fund's ongoing charge, any platform or custody fee, and any advice fee, then put the total in. People routinely underestimate the total because the components are disclosed separately.
Why is my result different from another fee calculator?: Almost always because of how the fee is applied. Deducting the fee from the return produces a slightly lower cost than charging it against the balance. This calculator does the latter, which is the more accurate model of a percentage-of-assets charge.
Does the calculator account for inflation?: No. Every figure is nominal. If you want the answer in today's purchasing power, run the real return calculator alongside it.

Real Return Calculator
See what the same return is worth after inflation and tax, not just fees.
Compound Interest Calculator
The same arithmetic without the fee, to see what compounding does on its own.
All free calculators