Investment fees are eating your returns

How much are your investment fees really costing you? You’ll be surprised by the answer



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How are your investment fees affecting your returns? A new site called the has the answer, but you may not like what you learn.

Larry Bates is the founder of, which aims to draw attention to the impact fees have on your portfolio. The 25-year financial services industry veteran was tired of watching people entrust their hard to earned money to the banks and fund companies only to see half of their gains lost to fees. That might sound like hyperbole, but when you run the numbers half might be an understatement.

Consider the following two scenarios.

Scenario 1

Let’s say you have a $100,000 portfolio earning 3% per year. Over 25 years that portfolio would more than double in value to $209,378, but that’s before fees. If the annual fee is 0.5% that portfolio will pay almost $24,000 in fees over that time. Because of the drag fees have on compounding, that gain realized by the investor is a little more than $85,000.

Scenario 2

Now let’s assume the same portfolio and performance, except this time the fee is 2%, which is in line with a typical mutual fund. Under this scenario, the portfolio’s performance is the same but more than $81,000 gets lost to fees. That leaves you with a gain of just $28,000 after 25 years.

In scenario 1 you almost double your portfolio in 25 years, in scenario 2 it would take that portfolio 70 years to double. 

To simplify things even more, Bates distills the impact of fees into something Bates calls the T-REX score, short for Total Return Efficiency Index. It represents the percentage of your total investment returns that you actually get to keep.

A score of 90% or above is likely where a DIY investors should score whereas if you’re investing in bank run mutual funds your score might be closer to 50%.

Long term investors understand the benefit of buy and hold because it takes advantage of the magic of compounding. But most investors fail to account for how fees affect that process. “Fees destroy the magic,” he says.

Fees are compounding at the same time as your returns, resulting in what Bates describes as a diminished compounding loss. “Because you are compounding at a lower rate it actually becomes the dominant factor in the loss,” he says. “It’s not intuitive.”

What’s your score?

While do-it-yourself investors are in the best position to control fees, Bates doesn’t suggest that approach works for everyone. Instead, he feels investors need to do a better job of measuring fees against the benefit.

The point of the WealthGame is to help everyone understand their true costs and to help them see if they are getting good value, he says. “If you don’t know what you’re paying then that’s a question you should ask,” he says.

Even if you’re comfortable with your investment approach it’s still useful to know how your fees compare with similar portfolios. The table below provides a good illustration of the ranges you can expect to be in depending on your investment approach.

If you find your score falls near the bottom, (or worse—below), one of those ranges then you may want to ask yourself whether you are getting good value for your fees. 


What’s your score? Check it out at 


One comment on “Investment fees are eating your returns

  1. The past 8 years have been basically an up market. The DYI investor has not seen a down market since 2008. How long do you think the DYI investor will stay invested when the next correction occurs? No one will be there to hold his hand !!!
    He will bail as he has in the past.
    How important are these fees to his portfolio now after he has accepted a loss and vows once again not to invest in the market.
    If a DYI investor earns a 3 % return and fees of .5 % ( stated above ) which equates to a net return of 2.5 %.
    But, if the investor ( through an advisor ) earns an average return of 5 % with a 2 % fee ….. who’s farther ahead ?
    The investor is much more likely to stay invested throughout with the help of an advisor
    As with any purchase you should always be aware of the costs . You get what you pay for !


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