Fees compound — against you
Investment returns compound: each year’s growth earns growth of its own. Fees work exactly the same way, only in reverse. A small annual expense ratio skims a sliver off your balance every year, and that sliver never gets to compound for you again. Run far enough into the future and a fee gap that looks like a rounding error becomes a life-changing sum.
How the fee model works
balancenext = balance × (1 + (return − fee) ÷ 100) + contribution
Each year the portfolio grows at the gross return minus the expense ratio, then the annual contribution is added at year end. We run this three times — at fee A, fee B, and a hypothetical zero-fee baseline — so the dollars lost to fees are simply the gap from that fee-free ideal.
What makes this calculator different
- A true side-by-side. Basic fee tools show one fund in isolation. We pit two expense ratios against each other so the cost of choosing the pricier fund is unmistakable.
- The share of gains fees consume. Beyond raw dollars, we show what fraction of your potential gains each fee eats — the number that reveals how much a “tiny” fee really takes.
- A zero-fee baseline. Every cost is measured against what you’d have with no fees at all, so nothing is hidden.
- The widening gap, visualized. A two-line chart shows the higher-fee fund quietly falling behind, year after year.
Frequently asked questions
What is an expense ratio?+
An expense ratio is the annual fee a fund charges, expressed as a percentage of the money you have invested. A 0.75% expense ratio means you pay $7.50 a year for every $1,000 in the fund. It’s deducted quietly from the fund’s returns rather than billed to you, so most investors never see it leave their account — which is exactly why it’s easy to ignore. It covers management, administration, and marketing costs.
Why do small fees matter so much over time?+
Because fees compound against you the same way returns compound for you. A fee skims a slice off your balance every year, and that missing slice never gets the chance to grow in future years either. Over a few decades the lost growth dwarfs the headline fee — a difference of well under one percent a year can quietly cost you tens or even hundreds of thousands of dollars, as the comparison above shows.
How much cheaper are index funds than active funds?+
Actively managed funds often charge 0.5%–1.0% or more, while broad index funds frequently charge 0.03%–0.10%. That gap exists because index funds simply track a benchmark instead of paying a team to pick stocks. Decades of data show most active funds fail to beat their index after fees, so the lower-cost option tends to win on both price and performance.
Is a 1% fee really that bad?+
A 1% fee sounds trivial, but it’s charged on your entire balance every year — not just your gains. Over a long horizon a 1% fee can consume roughly a quarter to a third of the gains you would otherwise have earned. It’s one of the most underrated drags on long-term wealth, which is why this calculator shows the dollars lost and the share of your potential gains the fee eats.
How do I find out what fees I’m paying?+
Look up each fund’s expense ratio in its prospectus or fact sheet, or on your brokerage’s fund page — it’s usually listed as “expense ratio” or “net expense ratio.” For an employer retirement plan, check the plan documents or ask your administrator. Also watch for separate advisory or platform fees, which stack on top of the fund’s own expense ratio.
Disclaimer: This calculator is for educational purposes only. It assumes a constant annual return and fee, ignores taxes and inflation, and uses simplified end-of-year contribution timing. Real investment returns vary and are never guaranteed. It is not financial advice.