How to use the investment fee calculator
The calculator has two tools.
Fee drag compares three versions of the same investment:
- Enter the starting amount and the monthly contribution. Contributions are added at the end of each month.
- Enter the return before fees: what the investments themselves are assumed to earn per year.
- Enter the fund’s expense ratio from its prospectus or factsheet, and any advisory or management fee you pay on top. Enter 0 for the advisory fee if you invest on your own.
- Choose the number of years.
The chart shows the account with no fees, with fund fees only and with both. The table adds the figures at 10, 20 and 30 years.
Turnover measures how actively a portfolio is traded. Enter the year’s purchases and sales, the average portfolio value and an estimate of the trading cost per side, which covers the spread, commissions and market impact of each purchase or sale.
The formulas
g = (1 + Return)1/12 − 1 fm = 1 − (1 − Fee)1/12
Total cost of fees = Value with no fees − Value after feesFee is the annual expense ratio plus the advisory fee. Charged monthly this way, a year's growth after fees is exactly (1 + Return) × (1 − Fee). Fees paid is the sum of the monthly fee amounts; the rest of the total cost is growth those amounts would have earned.
Trading cost drag = Turnover × Cost per side × 2
Implied holding period = 1 ÷ TurnoverEach unit of turnover is a sale and a matching purchase, so it pays the cost per side twice. Using the lesser of purchases and sales leaves out buying with new money and selling to meet withdrawals.
A worked example
Fee drag. You invest $50,000, add $500 a month and earn 7% a year before fees. The fund charges 0.5% and an adviser 1%, so the all-in fee is 1.50%.
After 30 years, the account holds $679,074.21, against $965,339.05 with no fees. The total cost of fees is $286,264.84, or 29.7% of the no-fee value. Of that, $129,532.77 is fees actually paid and $156,732.08 is the growth they would have earned. The fund expenses account for $107,745.99 and the advisory fee for $178,518.86.
Turnover. A portfolio averaging $500,000 bought $180,000 and sold $150,000 of securities during the year. The lesser figure, $150,000.00, gives a turnover of 30.0%, which implies holding a typical position for about 3.3 years. At 15 bps a side, the trading costs 0.09% a year, or $450.00.
Why small percentages become large sums
A fee is charged on the whole balance every year, not on the gains. In the first year the example’s fees come to $820.47. By year 30 the balance is many times larger, and so is each year’s fee. Each fee also takes away the future compounding of the money removed, which is why the total cost is more than double the fees actually paid.
The effect grows with time:
| Years | Total cost of fees | Share of the no-fee value lost |
|---|---|---|
| 10 | $20,566.23 | 11.2% |
| 30 | $286,264.84 | 29.7% |
Lower fees shrink the gap quickly. With a 0.05% index fund and no adviser, the 30-year cost falls to $11,400.64, or 1.2% of the no-fee value. Keeping the 0.5% fund but dropping the adviser gives a cost of $107,745.99.
None of this means a fee is never worth paying. An adviser who helps with tax planning, keeps you invested through a crash or prevents an expensive mistake can be worth more than the fee. The calculator shows the price, so you can judge the value.
Turnover: the cost the expense ratio leaves out
A fund’s expense ratio covers management and administration, but not the cost of trading its portfolio. Commissions, bid-ask spreads and the market impact of large orders are paid out of the fund’s assets and show up only as slightly lower returns. Turnover is the best public clue to how large they are.
At the example’s 30.0% turnover and 15 bps a side, the drag is 0.09% a year; compounded over 30 years it removes 2.7% of the value. A more active portfolio with 110.0% turnover and 25 bps a side loses 0.55% a year, and 15.2% over 30 years. Trading costs per side vary widely: they are small for large, liquid stocks and much larger for small companies, emerging markets and less liquid bonds.
Taxes are the other cost of turnover. In a taxable account, each sale at a profit realizes a capital gain. In the US, gains on positions held a year or less are taxed at ordinary income rates, and mutual funds pass their realized gains on to shareholders as distributions, even if you did not sell any shares. Low turnover lets gains compound untaxed for longer. Turnover does not matter for taxes inside a 401(k) or an IRA.
What this calculator does not include
- Fixed-dollar fees. Account fees, wrap fees charged per account and commissions on your own trades are not percentages of assets; add them separately.
- Fee tiers. Advisory fees often fall as the balance grows past breakpoints. The calculator uses one flat rate.
- Sales loads. A front-end or deferred sales charge is paid once, not yearly, and reduces the amount invested.
- Taxes, including the tax on fund distributions caused by turnover.
- Variable returns. The projection uses a constant return. Fee costs scale with the balance, so they are larger in good years and smaller in bad ones.