Investment Fee Calculator: What a 1% Fee Really Costs

Why small fees grow so large

Investment fees are charged as a percentage of your balance every year, so they compound just like returns do, only against you. A 1% fee does not cost 1% of your money; over decades it costs a large share of the growth, because every dollar taken out is a dollar that can no longer grow.

Ending balance = growth at (return − fee) each year

Starting with $50,000, adding $500 a month for 30 years and earning 7% before fees, a 1% yearly fee leaves about $803,000, while a 0.05% index fund leaves about $1,004,000. The difference is roughly $200,000, a fifth of the money.

Where fees hide

Fund expense ratios, advisory fees, 401(k) plan fees and trading costs all count. Broad index funds from large providers now charge 0.03% to 0.10% a year, while actively managed funds and advisers often charge 0.5% to 1.5% combined. Good advice can be worth paying for, but it helps to know the price in dollars over your lifetime, not just as a small percentage.

Fee levels side by side

With the starting figures, $50,000 plus $500 a month for 30 years at 7% before fees, a 0.05% index fund ends near $1,004,000. At a 0.5% fee the same savings end near $903,000, about 10% less. At 1% they end near $803,000, about 20% less, and at 1.5% near $716,000, almost 29% less.

In every case you put in the same $230,000. The difference is growth that went to fees instead of staying in your account, which is why comparing fund costs is one of the easiest wins in investing.