Editorial guide
Most investment illustrations show a single curve, a single number and a footnote about fees. The curve feels precise, but it hides the two forces that do most of the shaping — compounding fees that skim every year and inflation that taxes every year. This guide separates the three balances the calculator plots and shows why the gap between them is the real decision.
How the three balances are calculated
Every month the calculator applies the same rule twice — once at the gross return and once net of fees — then deflates the net figure to today's money. Monthly compounding is the standard for brokerage sweeps, ISAs and 401(k) units; it mirrors daily accrual settled monthly.
FV = P·(1+r)n + PMT·(((1+r)n−1)/r)
- P — initial investment. $10,000 at 7% gross for 25 years is $10,000×(1+0.07/12)300 ≈ $57,200 before any monthly addition — pure time.
- PMT — monthly DCA. $500/mo at 7% for 25 years is $500·((1.00583300−1)/0.00583) ≈ $344k contributed $150k, gain ~$194k. Early deposits compound roughly twice as long as late ones, so the annuity term is not linear in months.
- r — monthly gross = annual/12; net monthly = (annual − expenseRatio)/12. A 7% gross with 0.50% fee uses 0.583% gross vs 0.542% net — small monthly, large cumulative.
- n = years×12. 25 years is 300 deposits and 300 compounding steps.
- Real = FVnet / (1+inflation)years. At 2.5% inflation, FVnet $361k over 25 years deflates to ~$194k in today's purchasing power — the grocery-equivalent number.
Three intuitions fall out of the AreaChart. First, the dashed invested line is straight; the nominal and net curves bend upward — the bend is compounding and only steepens once monthly interest rivals the monthly deposit. Second, the amber real line grows slower and flattens earlier, because inflation, unlike contributions, does not pause. Third, the gap between dark nominal and emerald net widens every year — fee drag is tiny in year one, dominant by year twenty-five, which is why the yearly “fees” column looks harmless early and expensive late.
Assumptions kept explicit: contributions at month-end, flat return and flat fee/inflation, monthly compounding, no taxes or cash drag. Real portfolios vary ±18% a year; a flat 7% smooths that for planning but not for year-to-year withdrawal sequencing. Use the table to screenshot a path, then rerun at 5% to set a floor plan.
DCA, fees and inflation — the two drags that rival the return
Dollar-cost averaging earns its keep from regularity, not timing. A household that invests $500 every month for 25 years at 7% gross puts in $150k plus $10k initial and ends near $402k nominal, $361k after a 0.50% fee and $194k real — the fee took $41k, inflation took $167k. Extending to 30 years adds $70k gross but $58k fee+inflation drag. The yearly table makes it visible: in year five the fee column is a few hundred; by year twenty-five it is thousands per year and compounding against you.
| Setup — $10k + $500/mo | 20yr nominal | After 0.50% fee | Real at 2.5% | Fee + inflation drag |
|---|---|---|---|---|
| At 5% gross | $242k | $226k | $138k | $104k |
| At 7% gross (base) | $302k | $277k | $169k | $133k |
| At 9% gross | $379k | $341k | $208k | $171k |
| 7% at 1.20% fee | $302k | $257k | $157k | $145k |
| 7% at 0.05% fee | $302k | $298k | $182k | $120k |
Nominal uses gross return, after-fees uses gross minus expense ratio, real deflates after-fees by (1+inflation)^years. Rounded. 20yr, $130k invested.
Two patterns matter more than chasing the top row. First, trimming fees from 1.20% to 0.05% adds $25k real — more than lifting gross from 7% to 8% at the higher fee. Providers sell gross; you keep net. Second, inflation at 3.5% instead of 2.5% cuts 20-year real by ~15% at the same nominal, so a one-point inflation mis-assumption outweighs a one-point fee difference. That is why the calculator insists on showing all three numbers: nominal feels motivating, net is what your provider lets you withdraw, real is what rent costs when you do.
Using the planner without fooling yourself
Targets work backward. Decide what real balance would fund the spending you want — for example, $400/mo real via a 4% safe withdrawal needs $120k real ($400×12÷0.04). Set years to your horizon, fix inflation at 2.5–3.0% and raise monthly DCA until the amber real line hits the target, checking the nominal line only to know what your statement might say. If the required monthly feels high, adding two years often beats raising savings 30%, because those years add deposits, delay the deflation hit and give the balance two more years to compound.
The fee lever is next: slide expense ratio from 1.20% to 0.05% and watch the emerald and dark lines converge — the distance saved is a risk-free return, exactly as avoiding 6.5% mortgage interest is. If a product offers 8% with a 0.90% fee vs 7% at 0.07%, the 7% option nets more after 15 years despite the lower headline. The yearly fee column quantifies that crossover: when cumulative fees exceed a year's contribution, the fee is no longer a footnote.
Methodology and assumptions
- Model: Monthly simulation: balance = balance×(1+rmonthly) + PMT at month-end, run twice for gross and net, starting at initial. Real = net ÷ (1+inflation)year, flat annual inflation.
- Rates: Gross monthly = annual/12, net monthly = max(0, (annual−expenseRatio)/12). Gross CAGR = annual, net CAGR = annual−expenseRatio. Effective annuals are (1+monthly)12−1 if you reconcile to an EAR view.
- Totals: Invested = initial + PMT×months; gain = FV − invested; fees = FVnominal − FVnet; real gain = FVreal − invested.
- Chart & table: AreaChart plots nominal, net (after-fees), real and cumulative invested by year; yearly table snapshots end-of-year after that year's 12 deposits and compounding. Linear interpolation between years is visual only.
- Excluded: Taxes, contribution limits, employer match (add to PMT manually), cash drag, rebalancing, and variable returns. For match, add employer dollars to monthly; for taxes, reduce return by your marginal drag or model in your shelter type.
Bookmark a configuration and re-check after each fee change or windfall: the table reconciles to the formulas to the dollar under the assumptions above.