JMM RESEARCH Machina Scientiae Search K Pricing
Menu
PredictionsEventsCompaniesToolsTrending stocksPeopleGuides Pricing CorrectionsTermsPrivacy

Search runs in your browser, across every published page on this site.

Warren Buffett's investment fee-drag calculator

Compare a low-cost fund with a higher-fee strategy under the same gross return and expose both direct fees and the compounding those fees lose.

Warren Buffett at the 2015 SelectUSA Investment Summit Warren Buffett Historical strategy from 2017 Rule located in Berkshire Hathaway, 2017

Portrait: USA International Trade Administration, Public domain, via Wikimedia Commons. Self-hosted by JMM.

Interactive model

Put your numbers through the rule

The source establishes the rule. The values below belong to you, and the output is JMM's deterministic calculation.

Make the assumptions yours

Every field recalculates immediately. Changed values can be copied into a shareable URL.

Ending-value fee gap$440,855
At 0.05% fee
$1,766,038
At 1.25% fee
$1,325,183
Required gross alpha
1.2%

Both paths receive the same gross-return assumption; only the annual fee changes.

Where the fee gap opens up
$0$442k$883k$1.3m$1.8m01530
0.05% fee1.25% feeYears from today
Inspect the calculationThe same result in a readable record view

Low-cost path

Net return
7.0%
Ending value
$1,766,038

Higher-fee path

Net return
5.8%
Ending value
$1,325,183
Source and translation

What the source says, and what the calculator adds

Source-supported ruleBuffett argues that costs create a persistent aggregate handicap and recommends a low-cost S&P 500 index fund for nonprofessionals.
JMM calculationJMM holds gross return constant to isolate the fee difference, including the growth the removed dollars can no longer earn.
Formula and methodBoth paths use monthly compounding at gross return minus annual fee. Fee drag is the difference between their terminal values.
Berkshire Hathaway Feb 25, 20172016 Annual LetterPDF pages 20-23, especially page 23 beginning “Over the years”
Decision notes

What changes the answer

A small annual number compounds into a large gap

The calculator expresses the fee in ending dollars because percentages alone hide the foregone growth on every prior fee payment.

Required alpha is the fair comparison

A higher-fee strategy must earn enough additional gross return to recover its fee handicap before it creates a net advantage.

The most reliably correct piece of advice on this site. Fees are the one variable you control.

Nothing else in investing offers a known, permanent, risk-free improvement to your return, and this one does: a fee you do not pay is a return you keep, every year, on a base that keeps compounding. Buffett backed the argument with his own money and won the wager publicly. JMM would not spend a second arguing the principle. The only useful question left is the one this calculator asks: how large is the fee gap on your actual accounts, and does the higher-cost option have a reason to exist beyond being sold to you.

Written by the JMM editor. This is a view, not a recommendation for your circumstances. Who writes this

Not the calculator’s limits. The rule’s.

  1. A fee difference is not a manager comparison

    The model holds gross return equal, which is exactly what makes the fee visible and exactly what a real comparison cannot assume. A strategy with a genuine edge can be worth paying for; the fee just sets how big that edge has to be.

  2. Cheapest is not the same as best

    Chasing the lowest expense ratio into a fund that tracks something you did not intend to own is a worse mistake than paying five extra basis points. Cost is a tiebreaker between equivalent choices, not the choice itself.

Limits

What this model does not know

  • Real active strategies can have different gross returns, turnover, taxes, fee schedules, and risk.
  • Performance fees, high-water marks, and transaction costs are not modeled.
  • The result is a scenario, not a forecast for a named fund.
Questions people ask

Before you use the result

Are fund fees charged once a year?

Funds accrue expenses through the year. Monthly modeling is a transparent approximation.

Does a high fee prove a fund is bad?

No. This page isolates the hurdle the fee creates; it does not judge a particular manager.

Take the answer further

The next question this page cannot answer

Keep researching Warren Buffett

Person fileWarren Buffett

Open the verified role and source record behind this historical strategy.

Another Warren Buffett ruleOwner earnings calculator

What cash can a business distribute without weakening its position?

Another Warren Buffett ruleFive-year earnings range test

Is the lower end of your five-year earnings range reasonable at today’s price?