Investment Fees Calculator

The concept of investment fees is often overlooked – particularly by investing beginners. However, just like taxes and currency exchange differences, investment fees can be detrimental to portfolio returns if not managed carefully. The Hardbacon Investment Fees Calculator was developed with a vision to help investors make more informed decisions when it came to the purchase and management of assets such as stocks and bonds. Through the calculator, investors can:

• Assess the final value of their investments over an extended period of time post the payment of the requisite investment fees
• Analyze how much they are paying in fees over the number of years that they are in the market
• Evaluate the efficiency of different assets or brokerage platforms from an investment fee standpoint to understand which one(s) would be the most cost-effective

How to use the Hardbacon Investment Fees Calculator

The Hardbacon Investment Fees Calculator is designed to be user-friendly and flexible for all users to assess the true value of their investments post the payment of relevant fees. To use this investment fee comparison calculator, users need to input a few variables and the calculator completes the rest of the calculation automatically. These inputs include:

•  Initial investment: This number represents the initial amount of money that you put into the markets at the beginning of your investment journey.
• Annual investment: The annual investment figure refers to the total amount you add to the initial investment on an annualized basis.
• Annual rate of return: The annual rate of return is the expected amount (expressed as a percentage) that you expect to earn on average each year through the assets that you have invested into.
• Annual fees: Annual fees are also generally expressed as a percentage and refer to the amount charged by the advisor, broker or fund management company that you are working with.
• Years to grow: The total number of years that you anticipate keeping your investment into the assets you have bought is the number you should be entering into ‘Years to grow’.

Understanding the results of the Investment Fees Calculator

Once you have input all the variables you need to on the left side of the screen, the results regarding the impact of fees on your investment returns should be available for you to view on the right side. In total, you should see four numbers. The significance of each of these numbers is explained further below:

• Final investment value before fees: The final investment value will reflect the total gross amount that you can expect your investments to grow to based on the assumptions of the initial investment, annual investment, rate of return, and number of periods that you entered previously.
• Total fees paid: Typically, you will find that fees are charged on the total value of assets at the beginning of each year. For example, a $1,000 portfolio earning 10% returns with an advisor charging 1% may have fees that look something like:
  •  $10 for the first year (when the portfolio is worth $1,000)
  • $11 for the second year (when the portfolio is worth $1,100)
  • And so on…
• Final investment value after fees: The final investment value after fees is the net amount that you will have in hand once all fees have been paid. This is likely the most important number for you as an investor. A quick way to verify this number is by subtracting the ‘Total fees paid’ from the ‘Final investment value before fees’. The number you get should match exactly with the number under ‘Final investment value after fees’.
•       Total fee percentage: Lastly, the total fee percentage is the percentage of your total portfolio that you pay in fees. This number can also be easily verified. To understand how it is calculated, simply express the ‘Total fees paid’ as a total percentage of ‘Final investment value before fees’.

Learn more about the Investment Fees Calculator Inputs

While the aim of the calculator is to be as user-friendly as possible, it is vital that the inputs are as accurate as possible to obtain a reliable output. To help users understand what each input means and where they can find the right information, we have developed the below:

• Initial investment: The initial investment is a discretionary amount that is unique to each investor. If you invested your money a long time ago and cannot remember how much you put in initially, you can contact your broker or access your account online (if such capabilities are available to you).
• Annual investment: This is once again a discretionary amount based on the amount that each investor expects to contribute incrementally each year. To understand how much you can afford to contribute individually, create a monthly personal finance budget. This budget would consist of your monthly inflows and outflows. A good practice is to add 10% to your monthly outflow amount to ensure that you are accounting for any unforeseen expenditures. The residual amount that you are left with once you deduct outflows from inflows is the amount that you can deploy towards investments. Simply tally up this residual amount from each month to know how much you will be investing on an annual basis.
• Annual rate of return: The annual rate of return is contingent upon the type of assets that you are invested in. Different assets have different risk-return profiles, so it is important that you understand the type of asset you are deploying your capital into. Typically, stocks have generated an annual average of 7% to 10%. Bonds typically generate between 3% to 6%. If you have invested into a portfolio with both assets, an ideal way to calculate your expected annual rate of return is to take a weighted average. If you are unsure of your asset mix or rate of return, contact your financial advisor who can help provide the right information for you to make an optimal decision.
• Annual fees: Annual fees are set by the advisor or broker you are working with. It is important that you know these fees before you enter into a contract as fees can add up to become prohibitively expensive if you are not cognizant while initiating the contract. If you do not know what type of fees you will be charged, you can always look at a marketing document called the ‘prospectus’ or call up the advisor/broker to clarify.
• Years to grow: This number depends on the investment horizon that you expect to keep your money in the market for. People often save for retirement or a significant event like a child’s education. Thus, if you are unsure of what to put here, think about what your financial objective(s) is/are and count the number of years until when that event will materialize.

In Canada, there are several ways that investors can access the markets they want. It is important to remember that not all of these are created equal. Some channels are more expensive than others. Generally, robo-advisors charge a lower rate to buy assets such as mutual funds than a professional financial advisor. However, for a novice, the human touch and advice provided by an advisor that helps them make optimal financial decisions may justify the incremental fees paid. The below list provides a range for the investment fees charged by each platform in Canada:

• Robo-advisors: 0.5% to 1%
• Mutual funds bought through an advisor: <1% to 3%
• Mutual funds bought through an online brokerage: 1 to 1.7%
• ETFs: 0.1% to 0.7%