I recently read an article about Linear thinking in a non-linear world. It got me thinking about how fees and taxes have this non-linear impact on portfolio value. For this reason, it is un-intuitive to visualize how a 1.00% fee or a 15% capital gains tax rate can erode 30%-50% of a portfolio over time.

So I created a model to show my family the true impact of fees and taxes on a portfolio. It calculates not just the dollar value lost to different costs but the opportunity cost as well. Here are some graphs in case anyone finds these useful.

*Edit: Added a shareable model, tool available at: https://my.causal.app/models/11546 *Edit 2:Changed screenshots to Casual.app model graphs.

parentsretirement wrote: ↑Wed Jul 29, 2020 10:42 pm
So I created a model to show my family the true impact of fees and taxes on a portfolio. It calculates not just the dollar value lost to different costs but the opportunity cost as well. Here are some graphs in case anyone finds these useful.

The charts / graphs certainly help visualize the costs.

I'd like to see this in a spreadsheet added to the wiki. Perhaps the input parameters (costs) and dollars invested could be tuned to one's own tax and fee situation. Like what if you're in the 0% capital gains zone, or what if your mutual fund ER is .17% and your Federal tax rate is 12% or 35%. See what I mean?

parentsretirement wrote: ↑Wed Jul 29, 2020 10:42 pm
So I created a model to show my family the true impact of fees and taxes on a portfolio. It calculates not just the dollar value lost to different costs but the opportunity cost as well. Here are some graphs in case anyone finds these useful.

The charts / graphs certainly help visualize the costs.

I'd like to see this in a spreadsheet added to the wiki. Perhaps the input parameters (costs) and dollars invested could be tuned to one's own tax and fee situation. Like what if you're in the 0% capital gains zone, or what if your mutual fund ER is .17% and your Federal tax rate is 12% or 35%. See what I mean?

retired@50 wrote: ↑Thu Jul 30, 2020 5:47 pm
I'd like to see this in a spreadsheet added to the wiki. Perhaps the input parameters (costs) and dollars invested could be tuned to one's own tax and fee situation. Like what if you're in the 0% capital gains zone, or what if your mutual fund ER is .17% and your Federal tax rate is 12% or 35%. See what I mean?

Just had a chance to put together a shareable model. I've actually been playing with a new platform that makes it easier to interact with calculators like this. Link at https://my.causal.app/models/11546 and screenshot below:

parentsretirement wrote: ↑Thu Jul 30, 2020 10:17 pm
Just had a chance to put together a shareable model. I've actually been playing with a new platform that makes it easier to interact with calculators like this. Link at https://my.causal.app/models/11546 and screenshot below:

Looks promising, I'll take a longer look tomorrow and provide some feedback.

Regards,

ETA: Can the date range be modified? Otherwise, it looks good.

Last edited by retired@50 on Fri Jul 31, 2020 3:51 pm, edited 1 time in total.

1. In the taxable account, you say that $89k / $127k is paid in taxes. How did you calculate that? Is that only on the dividend yield, or are you assuming some rate of distribution taxed at a certain rate?

2. You claim that the advisor gets $57k / $265k of your money. How did you calculate that? It looks to me like it's simply a plug figure.

retired@50 wrote: ↑Thu Jul 30, 2020 11:18 pmETA: Can the date range be modified? Otherwise, it looks good.

Unfortunately the free version of Causal.app only let's you model up to 25 timesteps. You can however change the returns for every timestep in the "Portfolio Returns" tab and simulate other time periods.

Greenman72 wrote: ↑Fri Jul 31, 2020 4:33 pm
2. You claim that the advisor gets $57k / $265k of your money. How did you calculate that? It looks to me like it's simply a plug figure.

For AUM fees, at every timestep I'm calculating the running yearly fees as well as the opportunity cost of lost growth. In detail:

I calculate Advisor expense by taking last year's ending balance, applying this year's growth factor and multiplying by AUM fee.

Keep a running total of this Advisor expense.

Separately, keep a running opportunity cost by taking last year's running total, applying this year's growth factor, and adding this year's expense.

If you click Edit model in Causal.app you can see the inner-workings. You can also clone and make edits to the formulas.

wootwoot wrote: ↑Sat Aug 01, 2020 12:02 am
Do you have a version of this where your last comparison is an IRA with .03% expense rather than a Roth?

Not yet. I was only focusing on the impact of advisor vs DIY. It's eye-opening how 1% fees and taxes can eat up to 30%-50% of value.

Roth vs Trad IRA on the other hand has a much smaller impact as it's arbitrage between tax rates today and tax rates in the future. The bulk of the tax is saved by eliminating dividend tax-drag and capital gains.