Investment fee calculator

A 1% annual fee does not cost 1%. It is charged every year on a growing balance, and it also removes all the growth those deductions would have produced.

The calculator

With no fee$3,036,593After 30 years
With 1.00% a year$2,344,787Net compounding at 5.93%
Cost of the fee$691,80622.8% of the fee-free result
Flat subscription instead$3,960$132 a year for 30 years, paid from income

Over 30 years, a 1.00% annual fee removes $691,806 — 22.8% of what the same portfolio would have reached with no fee. In year one alone the percentage fee costs $2,500, against $132 for the flat subscription.

Computed in your browser in nominal terms. Enter a real (after-inflation) return if you want the answer in today’s money.

Why the number is so large

The instinctive estimate is that a 1% fee over thirty years costs about 30% of one year’s return. The real arithmetic is worse in two compounding ways. The fee is taken from the whole balance annually, and the money taken in year three would otherwise have compounded for the remaining twenty-seven years.

That second effect is the one that surprises people, and it is why the total often lands at a quarter or more of the final balance rather than a few percent. We simulated 5,000 forty-year saving lifetimes at 0%, 0.5% and 1% fee drag and found the dollar gap far larger than the percentage suggests — the full study is here.

Flat fee against a percentage of assets

The structural difference is what happens as you succeed. A percentage fee grows with the portfolio: the same advice costs twice as much on $2 million as on $1 million, without requiring twice the work. A flat fee stays flat, so its share of your portfolio falls every year you do well.

With the figures above, the percentage fee costs $2,500 in the first year and more in every subsequent one, while the flat subscription totals $3,960 across the entire 30 years.

This is not an argument that advice is worthless. Behavioural coaching, tax work and estate planning have real value and many people are better off with an adviser. It is an argument that the fee should be compared against what it buys — and that if what you wanted was modelling and projection, that part is now available for a flat price. See Killion vs Empower for the version of this comparison with a specific product attached, and AUM fee for the concept.

What to actually do about it

  • Add up your total cost: advisory fee, fund expense ratios and platform fees. It is the total that produces the drag, and it is usually higher than the headline number.
  • Check what the fee buys. If it is fund selection alone, that is the least valuable thing on the list.
  • Compare against the alternative honestly. Doing it yourself badly can cost more than 1% — panic selling in a drawdown is expensive, as forty years of S&P 500 data shows.

Frequently asked questions

How much does a 1% fee actually cost?
Far more than 1%. The fee is charged every year on a growing balance, and it also removes the compound growth those deductions would have produced. Over a few decades that typically amounts to a large share of the final balance.
Does this include fund expense ratios?
Enter the total annual cost — advisory fee plus fund expense ratios plus platform fees. It is the total that determines the drag.
Read the fee drag researchSee Killion’s flat pricing