Tools / Invest / Chapter 21 · The Cost of Investing
The cost of investing
Fees look small because they are quoted as a percentage. Over decades they are paid every year, on a growing balance, and they compound against you.
1 · The idea
Net return and end value
Charges reduce the return you keep. Because the lost return would itself have compounded, the gap between two products widens year by year.
The formula
Net return = gross return − annual cost FV = P × (1 + net)^t + monthly contributions grown at net
- gross
- return before costs
- cost
- all yearly charges: fund, platform, advice, trading
- t
- years
2 · A worked example
$10,000 plus $400.00 a month at a 7% gross return for 30 years: at 0.25% a year it ends at $517,738; at 1.75% it ends at $387,295. The 1.5-point difference costs $130,443, or 25% of the cheaper outcome.
3 · Now use your own numbers
Change anything. The result updates instantly.
Illustrative, not personal advice. Inspired by Chapter 21 · The Cost of Investing of Money, Explained From the Inside. Your figures stay in this browser. Real products add terms, taxes and conditions that this simple model leaves out.
4 · Take care
What this tool can’t see
- Add every charge: fund, platform, adviser, trading costs, and any entry or exit fee (spread them over the holding period).
- This assumes both products earn the same gross return. A genuinely better product could justify a higher price; ask for evidence.
5 · Go further
Where this fits
See it in a life:
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Keep the thinking going. Checklists, questions and worksheets inspired by the book, for the next time money is on the table. Part of the Reader’s Letter: a few times a year, never more.
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