Fee Drag Calculator
Fee drag is the share of a final pot that an annual charge removes. At 5 basis points it takes 1.5% over thirty years, at 20 it takes 5.8%, at 75 it takes 20.2%, and at 150 it takes 36.5%. The charge is certain even when the return is not.
What the fee takes
The share removed depends only on the charge and the years. The money figures also use your assumed return.
The share removed is 1 − (1 − fee)^years. It depends only on the charge and the horizon, which is why it can be quoted without assuming any return at all.
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How the number is built
A fund charges a percentage of your holding every year. That charge is taken whatever the market does, and because it is taken repeatedly it compounds in the same way returns do — against you.
The share of the pot removed is one minus the survival rate, compounded:
Share removed = 1 − (1 − annual charge)^years
Notice what is absent from that formula: the return. The proportion a fee takes does not depend on whether markets rose or fell. That is why the headline figures on this page can be stated without assuming any market outcome, and it is what makes them unusually solid for a financial number.
The reason people underrate it is the unit. A charge is quoted as a fraction of a percent per year, which is the smallest way of expressing it. Quoted as a share of a lifetime result, the same number reads very differently.
A worked example
Take the defaults: 75 basis points a year, held for 30 years, on £10,000 with a 7% gross return.
First the share, which needs no return assumption. 75 basis points is 0.75%, so each year you keep 99.25% of what you would otherwise have. Over 30 years that is 0.9925 raised to the 30th power, which is 0.798 — so 20.2% of the pot is gone.
Now the money, which does need one. At 7% a year with no charge, £10,000 becomes £76,123. The same money at 7% less the 0.75% charge becomes £60,734. The difference is £15,389, from a charge that was described as three quarters of one percent.
Change the charge to 5 basis points and the same 30 years removes 1.5%. Change it to 150 and it removes 36.5%. The gap between the cheapest tracker and an expensive active fund is, over a working life, more than a third of the result.
The four figures this site uses
Over thirty years: 5 basis points removes 1.5%, 20 removes 5.8%, 75 removes 20.2%, and 150 removes
36.5%. These are in research/series-measurements.json and they appear on every page of this site
that discusses costs, because they are the same four numbers each time.
The jump from 20 to 75 basis points is the one worth internalising. It is a difference of 0.55 percentage points a year, and it costs 14.4 percentage points of the final pot. Small annual differences are not small.
And the effect scales with the horizon rather than with the amount. Doubling your contributions doubles both sides of the comparison. Doubling the years does not — it compounds the charge again.
Why it is the input that matters most
You cannot choose the return, the sequence, or the decade you happen to invest in. You choose the charge once, at the point of buying, and then live with it for as long as you hold.
In a decade that goes nowhere, the charge is the entire measurable outcome. The index returned nothing, the fund returned nothing minus its costs, and the only event in ten years was the fee. That is not a hypothetical — flat decades have happened more than once.
And there is a second charge nobody quotes. The bid-ask spread is paid on every purchase and appears on no factsheet, because it belongs to the market rather than to the provider. For someone buying monthly it can rival the annual charge.
The original data
Of the 24,971 unique videos in research/search-study-corpus.jsonl, zero have an
instruction-shaped title about fee drag or what an expense ratio costs. Index funds appear in 26
instruction-shaped titles at a median of 88,014 views, and ETFs in 90 at 15,114. The counts come from
site/rank_tools2.py, which deduplicates by video id.
Zero videos on the single largest controllable variable in long-term investing. Index funds are covered heavily and the arithmetic that makes one index fund better than another is covered nowhere in this corpus. It is not a surprising gap — it is a spreadsheet rather than a story — but it is a real one.
The answer to the question on that chart depends on the size of the gap. Switching costs a round trip, which on this site’s shared series is 2% of a median bar’s range, plus any tax on the disposal. A move from 150 basis points to 20 is worth paying that once. A move from 12 to 9 is usually not, and chasing it is the mirror image of the mistake this page is about.
When it fails
The most common misuse is switching funds to chase a small saving. The arithmetic above makes fees feel urgent, and the natural response is to move — but a round trip costs money immediately and certainly, while the saving arrives slowly over decades. On a small gap the transaction cost exceeds the benefit, and in a taxable account a disposal can trigger a bill that dwarfs both. The page’s conclusion is to choose well once, not to keep optimising.
The second failure is assuming the charge pauses in a bad year. It does not. A fund that loses money still takes its fee, which is why the share-removed figure is independent of return.
A third is comparing headline fees rather than total costs. Transaction costs inside the fund and the spread you pay to buy it are both real and both excluded from the quoted figure.
A fourth is applying a thirty-year figure to a three-year holding. Over short horizons the effect is genuinely small, and overstating it is the same error in the other direction.
A fifth is ignoring tracking quality. A cheap fund that follows its index badly has saved you a few basis points and lost more than that in performance.
And a sixth is treating this as the only decision. The fee is the most controllable input, not the largest one — the choice of index and the decision to keep contributing both matter more.
Related
Index funds is where this comparison is actually made and what a tracker holds. ETF investing covers the exchange-traded version, where the spread becomes a second cost. And tracking error is the measurement that decides whether a cheap fund is genuinely cheap.
The figure that changed how I think about funds is 36.5%. A charge of one and a half percent a year sounds like a rounding error next to what markets do in a bad week, and over a working life it takes more than a third of the result. Nothing else in a long-term plan has that much leverage and sits entirely under your control.
— Michael Whitman
This page is educational, not financial advice. Test every idea on your own charts before risking money.