Direct answer
Investment fees reduce returns twice: money is deducted directly, and that money can no longer earn future growth. Over long periods, the second effect can be substantial even when the annual percentage looks small.
A useful comparison holds the starting balance, contributions and gross return constant, then models each fee structure independently against a no-fee baseline.
The fee-drag measures
Total fee drag = no-fee ending value − after-fee ending valueLost growth on fees = total fee drag − direct fees deductedDirect fees answer “how much was taken out?” Lost growth answers “how much future value did those deductions remove?” Total fee drag combines both effects.
Monthly calculation order
- Apply the monthly equivalent of the gross annual effective return to the opening balance.
- Deduct the monthly equivalent of the annual percentage fee.
- Deduct one-twelfth of the annual fixed fee, capped at the available balance.
- Add the regular contribution at month end.
This order is explicit so the result can be reproduced. Real products may deduct charges on different dates or use tiered, minimum or capped fees.
Worked 20-year example
Assume 10,000 initially, 200 contributed at each month end, 20 years and a constant 7% gross annual effective return.
| Scenario | Ending value | Direct fees | Lost growth | Total fee drag |
|---|---|---|---|---|
| No fees | 140,204.12 | 0 | 0 | 0 |
| 1% annual + 120 fixed | 117,132.11 | 13,165.18 | 9,906.84 | 23,072.01 |
The direct fees are not the whole cost. Nearly 9,907 of the difference is growth that the deducted money no longer earns under the constant-return model.
Percentage fees and fixed fees behave differently
| Fee type | Typical mathematical effect | What to check |
|---|---|---|
| Percentage of assets | Grows as the balance grows | Which balance and date are used? |
| Fixed account fee | Proportionally larger on small balances | Annual, quarterly or monthly timing? |
| Transaction charge | Depends on trading frequency | Not included unless converted into an entered fixed fee |
| Entry or exit charge | Changes cash invested or withdrawn | Not modelled in this version |
Why a no-fee baseline is not a product forecast
The baseline isolates fee mechanics. It does not imply that a no-fee product with identical performance exists. Products with different fees may track different assets, provide different services or produce different gross returns. The calculator intentionally holds gross return constant so the effect of entered fees can be seen without mixing it with performance assumptions.
Limitations
- Gross returns and fees are constant, not predicted.
- Tax, inflation, bid/offer spreads and trading costs are excluded.
- Fixed fees are spread evenly across months for transparency.
- Fees are capped at the available balance so the model never creates a negative portfolio.
- Past performance and modelled returns do not guarantee future results.