1% in costs takes almost a quarter
Costs work like a return with the sign turned round, and they compound too. US$10,000 over 30 years at 7 % a year becomes US$76,122.55. If a product takes 1 % in costs every year, 6 % is left, and it becomes US$57,434.91. That is US$18,687.64 or 24.55 % less, almost a quarter.
The arithmetic is 10,000 × 1.06^30 against 10,000 × 1.07^30. The simulation takes running costs off the return in exactly this way. With a savings plan of US$200 a month over 30 years it is US$195,851.29 instead of US$235,212.97, so 16.73 % less, because money paid in later spends less time under the costs.
Costs are taken every year from a sum that keeps growing. A small rate becomes a large amount over decades.
US$10,000 over 30 years at 7 % becomes US$76,122.55. With 1 % in costs a year it is US$57,434.91, 24.55 % less.
Arithmetic only, no data series behind it.
Questions people ask
How much do one percent of costs take?
Over 30 years at 7 % a year, 1 % in costs takes 24.55 % of a lump sum. The costs compound like the return, only the other way.
Why do costs hurt a savings plan less than a lump sum?
Because money paid in later spends fewer years under the costs. The lump sum carries them on the whole amount from the first year.
Where can I find the running costs of a fund?
In the documents of the product, as the yearly running costs. The simulation takes them off the return.
The same lump sum with and without running costs, and what the costs take by the end.
The simulation, the comparison and the Beam stay free.
Education, not advice. Disclaimer