Investment fees: a negative return that compounds
Say a portfolio holds €60,000. With 2% in fees a year, it pays €1,200 in the first year, a whole month's deposit for someone who saves €1,200 a month. With 0.25%, it pays €150.
Investment fees are expressed as a percentage of the amount invested, meaning everything in the portfolio, not only what was paid in. So they grow with the portfolio, and each euro taken out earns nothing in the years that follow.
In the calculation, this is compound interest in reverse. An assumed return of 6% a year, minus 2% in fees, makes the portfolio grow at 4% a year. In real terms, with 2% inflation, 6% nominal comes to 3.92% and 4% nominal to 1.96%: two points of fees take away half the real return.
The fees on an investment add up. There are the fund's own fees, transaction fees on each purchase or sale, account keeping or custody fees at the intermediary, and sometimes entry charges. For packaged investment products sold to retail investors, Regulation (EU) No 1286/2014 of 26 November 2014, known as PRIIPs, requires a key information document (KID) of no more than three sides of A4. Its section "What are the costs?" sets out direct and indirect costs, one-off and recurring. According to the CSSF's PRIIPs page (in French), these rules have applied since 1 January 2018, and the KID is handed over in good time before the investor is bound by a contract.
Annual fees charged on the amount invested compound like a return, only in the other direction.
Impact of fees on savings: the same plan at six fee levels
The sample plan starts from €60,000 already invested. It adds €1,200 a month, indexed to inflation, and aims for €2,400 net a month once financial independence is reached. From one row to the next, only the fee level changes.
The 6% a year before fees is an assumption made for the example, not a forecast. The 2% inflation is the European Central Bank's medium-term target, checked in September 2026; the target says nothing about the actual average over the decades ahead. The withdrawal rate is 4% before fees. No tax is levied on withdrawals, as for the Luxembourg resident described further down.
| Annual fees | Withdrawal rate after fees | Target capital (today's euros) | Time to independence | Portfolio after 25 years (today's euros) |
|---|---|---|---|---|
| 0.10% | 3.90% | €738,462 | 24 years 10 months | €752,206 |
| 0.25% | 3.75% | €768,000 | 25 years 11 months | €734,766 |
| 0.50% | 3.50% | €822,857 | 28 years 0 months | €706,725 |
| 1.00% | 3.00% | €960,000 | 33 years 3 months | €654,286 |
| 1.50% | 2.50% | €1,152,000 | 40 years 7 months | €606,340 |
| 2.00% | 2.00% | €1,440,000 | 51 years 8 months | €562,488 |
These figures come from the engine of the financial independence calculator, which counts month by month. The monthly return there is (1 + return − fees)^(1/12) − 1. The target capital is annual spending divided by the withdrawal rate minus fees, because fees are still charged once independence is reached. Independence is reached in the first month in which the portfolio exceeds this capital, which is itself indexed to inflation.
Two effects add up in the table. The portfolio after 25 years drops from €752,206 to €562,488, while the target capital rises from €738,462 to €1,440,000, almost double. The portfolio moves more slowly towards a target that keeps moving away.
At 2%, the second column shows half of the 4% withdrawal rate going in fees. On €1,440,000, 2% in fees comes to €28,800 a year, exactly what €2,400 of spending a month adds up to.
The effect is not linear. Each half point costs more years than the one before: 5 years and 3 months between 0.50% and 1%, 7 years and 4 months between 1% and 1.50%, 11 years and 1 month between 1.50% and 2%. A full point therefore costs 12 years and 7 months between 0.50% and 1.50%, and 18 years and 5 months between 1% and 2%.
The financial independence calculator, pre-filled with 2% fees, runs this calculation with your own amounts and shows, below the result, the same plan at other fee levels. It is an estimate for teaching purposes.
In this plan, each half point of fees costs more years than the one before, because fees slow the portfolio down and push the target further away.
Cost of fees over the long term: 10, 25 and 40 years on
Here, the same plan keeps up its deposits without a break, even after independence. Only the capital counts, not the arrival date. Amounts are in today's euros, adjusted for 2% inflation a year.
| Annual fees | After 10 years | After 25 years | After 40 years |
|---|---|---|---|
| 0.25% | €260,979 | €734,766 | €1,549,069 |
| 1% | €248,620 | €654,286 | €1,280,907 |
| 2% | €233,119 | €562,488 | €1,003,225 |
After ten years, the gap between 0.25% and 2% is €27,860, a little under two years of deposits. After 25 years, it reaches €172,278. After 40 years, it stands at €545,844, nearly twenty times the gap in year ten.
In proportion, the 2% portfolio is worth about 11% less than the 0.25% one after ten years, 23% less after 25 years and 35% less after 40 years. The gap grows faster than the portfolio, because each year of fees hits capital already reduced by the years before.
Between 0.25% and 1%, the difference after 40 years already comes to €268,162. Going from 1% to 2% takes away another €277,682.
Between 0.25% and 2% in fees, the gap is worth nearly two years of deposits after ten years, and €545,844 after forty.
Annual investment fees: what comes on top for a cross-border worker
The sample plan pays no tax on its withdrawals, as in Luxembourg. According to guichet.lu (page in French), capital gains on securities held for more than six months, for a stake of no more than 10% of the share capital, are exempt there.
| Country of residence | Published rule on capital gains on securities |
|---|---|
| Luxembourg | Exempt after more than 6 months of holding, stake of 10% or less; held 6 months or less, taxed at the progressive rates unless the year's total stays under €500 |
| Belgium | 10% tax from 1 January 2026, first €10,000 tranche exempt (tax year 2027) |
| France | Flat tax (PFU) of 31.4% since 1 January 2026: 12.8% income tax and 18.6% social contributions |
The Belgian row comes from the SPF Finances page on the capital gains tax, in French. The French row comes from the Service-Public news item of 10 February 2026 on the PFU, also in French. The Service-Public page on capital gains on securities, checked on 15 April 2026 and in French too, applies that 31.4% rate to gains on sales.
Fees slow the growth of the whole amount invested, every year. Tax works differently: it takes its share of each withdrawal, on the gain that withdrawal contains. To receive €2,400 net, the gross withdrawal goes up, and the target capital with it.
For a cross-border worker paid in Luxembourg, these capital gains generally fall under the rules of the country of residence, not those of the country that pays the salary. An expat who leaves Luxembourg before selling in principle moves to a different row of this table.
With an account on each side of the border, fixed fees weigh according to the size of the account. €60 a year, a hypothetical amount, is 1% of a €6,000 account and 0.1% of a €60,000 one.
Fees cut the rate every year, tax cuts each withdrawal, and for a cross-border worker the second effect depends on the country of residence.
What the number does not show
Lower fees say nothing on their own about an investment's risk or its return. The table applies the same 6% to every row to isolate fees, whereas two investments with different fees may hold different assets.
The engine takes a single annual fee rate. It does not model entry charges or taxes on transactions separately. An entry charge reduces each deposit once, whereas annual fees reduce the whole amount invested every year.
The return stays constant, while markets move. A bad run of years at the start of withdrawals weighs more heavily, and a smooth curve hides that. The 4% withdrawal rate and the 2% inflation are assumptions too: if they change, every amount changes, but the order of the rows does not.
The table isolates fees by holding everything else fixed, and in real life nothing stays fixed.
Frequently asked questions
How much does a 1% investment fee cost over 25 years?
In the calculator's sample plan (€60,000 to start, €1,200 a month, an assumed 6% a year before fees), the portfolio reaches €654,286 in today's money after 25 years with 1% fees, against €734,766 with 0.25%. The gap is €80,480. Independence also arrives 7 years and 4 months later, because the target capital goes from €768,000 to €960,000.
What are the annual fees on an investment?
They include the fund's fees, transaction fees, account keeping or custody fees, and sometimes entry or exit charges. For packaged investment products, the key information document required by the PRIIPs Regulation sets them out in the section "What are the costs?", separating one-off from recurring costs. Fees expressed as a percentage of the amount invested are the ones that apply every year to all the capital.
Why do fees still matter after financial independence?
Because they are still charged during withdrawals. With a 4% withdrawal rate and 2% fees, only 2% of the portfolio goes towards living costs each year. For €2,400 a month, the target capital then goes from €720,000 with no fees to €1,440,000, twice as much.
How do you calculate the impact of fees on your savings?
The fees come off the return, and the result compounds. €10,000 invested for 25 years with an assumed 6% a year becomes 10,000 × 1.06^25, so €42,919. With 2% fees, it grows at 4% and becomes 10,000 × 1.04^25, so €26,658. These amounts are in year-25 euros, before inflation and before tax.
Key points
- Annual investment fees, expressed as a percentage of the amount invested, compound like a negative return: an assumed 6% with 2% fees makes the portfolio grow at 4%.
- Fees weigh twice, because they slow down saving and then raise the target capital, which equals annual spending divided by the withdrawal rate minus fees.
- In the calculator's sample plan, going from 0.25% to 2% in fees pushes independence back by 25 years and 9 months and leaves €545,844 less after 40 years, in today's euros.
- The key information document required by the PRIIPs Regulation sets out the one-off and recurring costs of a packaged product in a dedicated section.
- For a cross-border worker, tax on withdrawals depends on the country of residence and comes on top of fees. Lower fees say nothing on their own about an investment's risk or return.