Gross monthly factor
g = (1 + gross annual return)^(1/12)The user-entered effective annual return is converted into a geometrically consistent monthly factor.
Investment Fee Calculator · Methodology
How the calculation works
Illustrate how recurring percentage and fixed investment fees could reduce final wealth, separating charges deducted from the compound growth foregone on those charges.
Return to calculatorIncluded
- An initial portfolio
- Regular month-end contributions
- Annual contribution increases
- A constant gross annual return
- Four editable ongoing percentage-fee scenarios
- One shared fixed annual charge
- A no-fee comparison reference
- Fees paid, lost growth and total fee drag
Outside this method
- Investment performance forecasts or probabilities
- Tax and wrapper rules
- Inflation and today-money values
- Initial, exit, dealing and performance fees
- Advice about funds, platforms or providers
- A judgement about whether added service is worth a higher fee
Calculation
Core formulas
Monthly fee retention
f = (1 − annual percentage fee)^(1/12)Applying this retention factor every month produces the selected effective annual percentage deduction.
After-fee balance
Bₘ = Bₘ₋₁ × g × f − fixed annual fee ÷ 12 + contributionₘGrowth and fees are applied before the month-end contribution. A charge cannot reduce the balance below zero.
Total fee drag
Drag = no-fee final wealth − after-fee final wealthThe no-fee reference uses identical money and return assumptions but removes all charges.
Lost investment growth
Lost growth = total fee drag − fees actually deductedThis is the extra gap created because earlier fees are no longer present to earn subsequent returns.
Potential wealth lost
Potential wealth lost = total fee drag ÷ no-fee final wealthThe percentage expresses fee drag relative to the modelled no-fee reference.
Timing convention
When cash flows occur
The opening portfolio is invested at the start. Gross return and percentage fees are applied monthly, the fixed annual charge is divided equally across 12 months, and contributions enter at each month end. Contributions increase once at the start of each modelled year when growth is selected.
Limitations
What the result cannot establish
- Real investment returns are volatile, so the timing of charges and gains will differ from a smooth illustration.
- Providers may calculate and collect fees daily, monthly, quarterly or by selling units; the model standardises timing for comparison.
- A percentage fee may apply to only part of a portfolio or use tiers and caps that this single rate cannot reproduce.
- The no-fee reference is an analytical baseline, not an available cost-free product.
- Higher fees may pay for different services, asset allocation or advice whose value is not modelled.
- Displayed whole-pound values can differ slightly from the underlying unrounded calculation.
Reference tests
Numerical checks
| Case | Inputs | Expected result |
|---|---|---|
| No charges | £100,000 initial; 5% return; 10 years; 0% percentage fee; £0 fixed fee | £162,889.46 final wealth, £0 fees and £0 fee drag |
| One percent annual fee | £100,000 initial; 5% return; 10 years; 1% percentage fee; £0 fixed fee | £147,314.31 final wealth and £15,575.15 total fee drag |
| Zero return | £100,000 initial; 0% return; 10 years; 1% percentage fee | Lost growth is £0, so total drag equals fees deducted |
Evidence