A fee is a slice of the return you do not get to keep. One percent a year does not cost one percent of today’s balance. It costs a share of every future year’s growth, because the fee is charged on a larger balance each year and the money it removed never compounds.
Compare the all-in percent
Each fee is subtracted from the return before the balance compounds. If the portfolio earns 7 percent before fees and the fee is 1 percent, the calculator compounds at 6 percent. That is a close description of a fee taken from the balance, and it is clear enough to show the long-run cost.
Compare fund expense ratios plus any advisory fee. A quoted advice fee can leave the funds out. The defaults compare a 0.08 percent cost with a 1 percent cost because that gap is a common one to ask about. Both sides receive the same contributions and the same return before fees.
The dollar gap is the question, not the verdict
A higher fee can be a fair price for advice that raises your savings rate, lowers your taxes, or stops a costly mistake. This page shows the price. It cannot see the advice. Use the gap as the question you ask, not as an automatic no.
A low fee does not fix a savings rate that is too small. Fees on a new account look harmless in year one. Stretch the years. That is when a small annual gap becomes a large share of the ending balance.
What the comparison isolates
Taxes, turnover, and account type can matter as much as the headline fee. They are not in this chart. The point of holding them out is to see the fee by itself. If two options also differ in taxes, this gap is only part of the decision.
Ask for the all-in annual percent in writing. Then run it here next to a simpler portfolio you could actually hold. The difference is what the more expensive option has to earn back in better behavior, better taxes, or better planning.
How to use the investment fees calculator
Each fee is subtracted from the return before the balance compounds. The gap is the ending balance at the lower fee minus the ending balance at the higher fee. A 1% difference does not cost 1% of today’s balance. It costs a share of every future year’s growth. A higher fee can still be reasonable if advice raises your savings rate, lowers your taxes, or stops a costly mistake. The calculator shows the price, not the verdict.
- Enter the balance and the monthly amount you add.
- Enter the return before fees, then the two annual fees you want to compare.
- Set the number of years. Fee gaps are small in year one and large after decades.
- Read the dollar gap, then ask what you get for the higher fee.
How the math works
Net return
If the portfolio earns 7% before fees and the fee is 1%, the calculator compounds at 6%. That is a simplification of a fee taken from the balance, and it is close enough to show the long-run cost.
Why the gap grows
The fee applies to a larger balance every year, and the money the fee removed does not get to compound. Contributions keep coming in, so the higher fee is charged on new money too.
What to compare
Compare an all-in cost: fund expense ratios plus any advisory fee. A 0.08% fund and a 1% advisory relationship are the defaults because that gap is a common one to ask about.
$100,000 plus $500 a month, for 30 years
The defaults earn 7% before fees and compare a 0.08% fee with a 1% fee.
The lower fee grows to about $1.39 million. The higher fee grows to about $1.10 million. The difference is about $288,000, roughly a fifth of the lower-fee balance.
Terms worth knowing
- Expense ratio
- The annual fund fee, as a percent of assets. It is taken inside the fund.
- Advisory fee
- A fee paid to an advisor, often a percent of the assets they manage.
- All-in fee
- Expense ratios plus the advisory fee. Compare that total, not one line of it.
- Fee drag
- The compound wealth you do not get because fees reduced the return.
What to do with the number
Ask an advisor for the all-in annual percent, including the funds. A quoted advice fee can leave out the funds.
A low fee does not fix a savings rate that is too small. Run the retirement planner for that question.
If the higher fee comes with planning you will actually use, judge the gap against that help. The chart cannot see tax savings or a behavior change.
Fees on a small new account look harmless. Stretch the years. That is when they show up.
Questions people ask
What this leaves out
The fee is a constant annual percent subtracted from the return.
Both portfolios earn the same return before fees and receive the same contributions.
The return does not vary from year to year.
Taxes and trading costs beyond the fee you entered are not included.
These figures are estimates to help you understand the tradeoff. They are not tax, legal, insurance, or investment advice. A fiduciary can look at the same numbers in the context of the rest of your plan.