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The Compounding Cost Calculator is a tool that analyzes your current investment portfolio to show how fees impact your long-term retirement savings. It also compares your current holdings against potential lower-cost alternatives with similar investment characteristics.
What is the Compounding Cost Calculator?
Investment fees may seem small initially, but they compound over time and can reduce your overall portfolio growth. Even a 1% annual fee can reduce your portfolio’s growth over decades. The Compounding Cost Calculator provides transparency into expense ratios, 401(k) plan administration fees, and advisor fees.
The tool allows you to:
Analyze your current portfolio to calculate total estimated fees.
Project the long-term impact of these fees on your retirement savings.
Compare your current plan against a hypothetical low-cost M1 portfolio with similar investment characteristics.
Where do I find the Compounding Cost Calculator?
For M1 users:
Log in to your M1 account.
Navigate to Invest in the left-hand menu.
Under the Insights section, click Compounding Cost Calculator.
How do I use the Compounding Cost Calculator?
Step 1: How do I enter my holdings?
Import your portfolio using one of two methods:
Option A: Connect via Plaid. Securely link your external brokerage or retirement accounts through Plaid to automatically import your holdings. Note: Plaid does not import 401(k) plan administration fees or advisor fees. You must enter these manually.
Option B: Manually enter holdings. Search for individual ticker symbols and enter the current dollar amount for each position.
Step 2: How do I personalize my assumptions?
Customize the following inputs to generate your projection:
Annual contributions: The dollar amount you plan to contribute each year. Include any employer match if analyzing a 401(k).
Years to retirement: Your investment time horizon (e.g., your target retirement age minus your current age).
Expected return: Your anticipated average annual return. (Note: The default 7% assumption is a hypothetical example for illustrative purposes only and does not represent the performance of any specific investment).
Advisor fees: The percentage fee charged by your financial advisor, if applicable.
401(k) administration fees: Annual fees charged by your retirement plan administrator if applicable.
Step 3: How do I review my personalized report?
Once your data is entered, the calculator generates a report displaying:
Annual fees for each holding: Calculated using the investment’s expense ratio.
Projected retirement savings of your current plan: Reflects all investment, advisor, and 401(k) administration fees.
Projected retirement savings of a low-cost plan on M1: A hypothetical projection based on lower-cost assumptions (see the FAQ section below for exact parameters).
Retirement savings lost to fees: The calculated difference between your current plan’s projected savings and the hypothetical low-cost M1 plan.
Note: The information in this report is generated based on client-entered data is not verified by M1 for accuracy or completeness.
Step 4: How do I select low-cost alternatives?
Browse the provided lower-cost alternatives that share characteristics with your current holdings.
Review the similarity score (0-10) for each alternative. Higher scores indicate greater similarity in asset allocation, market exposure, and fund characteristics.
Compare expense ratios to evaluate potential cost differences.
Risk Consideration: The suggestions shown are for informational and educational purpose only. They are not a recommendation to buy, sell, or hold any security. Evaluate all funds carefully to ensure they align with your overall investment strategy.
Step 5: How do I build my low-cost portfolio?
Select the lower-cost alternatives you prefer from the provided list.
Review your newly projected portfolio performance.
Evaluate the potential difference in overall projected savings.
Step 6: How do I invest in my low-cost portfolio?
For M1 users: Click Save Portfolio to My Pies to add the allocation to your My Pies.
For non-M1 users: Click Get started with this Portfolio. You will be prompted to create an M1 profile and open an Invest account. Once open, navigate to Invest > Research > My Pies to locate your saved portfolio.
Step 7: How do I save my report?
Click the save option within the calculator to generate a secure link. You can access your saved reports at any time by returning to the Compounding Cost Calculator.
Frequently Asked Questions (FAQs)
What are the low-cost plan assumptions?
The tool uses a hypothetical low-cost plan comparison to illustrate the potential impact of fees. The default assumptions include:
A portfolio built on M1 with a 0.10% average expense ratio.
No 401(k) administration fees.
No advisor fees.
For balances under $10,000, a $3/month platform fee is included in the calculation.
Why don’t I see any low-cost alternatives?
Some holdings may not result in a low-cost alternative - such as target date funds, funds with a less common asset allocation mix, or if the comparable security cannot be supported by M1.
See Securities supported on M1 for additional information. If you wish to see a security added to M1, please contact M1 Client Success.
Where do I find my 401(k) plan administration fees?
These fees are separate from your fund expense ratios and are charged at the plan level. Find them in:
Your 401(k) statement: Look for "administrative fees," "recordkeeping fees," or "plan fees."
Annual fee disclosures: Employers are required to provide annual disclosures outlining plan fees.
Summary Plan Description (SPD): This document details all plan costs.
Your HR Department: Contact your benefits administrator for specific details.
Note: The calculator uses a default assumption of 0.38% (or $100 for fixed amounts) based on research from the Investment Company Institute. Plaid cannot import these fees; manual entry is required.
Where do I find my advisor fees?
If you use a financial advisor, locate your fees in:
Your advisory agreement: The initial contract outlining your fee structure.
Account statements: Most advisors list deducted fees on quarterly or annual statements.
Direct inquiry: Advisors are required to disclose their compensation upon request.
Note: Plaid cannot import advisor fees; manual entry is required.
Why do you need my email and password to use Plaid or save my report?
Handling your financial data securely is our top priority. We collect and verify your email to securely connect your external accounts via Plaid and to email you a secure link to your saved report. When returning to view a saved report, you will use these same credentials. This process verifies your identity and secures your financial data.
What is the similarity score and how is it calculated?
The similarity score (ranging from 0 to 10) measures how closely an alternative fund matches your original holding's investment characteristics. Suggested alternatives are limited to M1’s offerings.
What it includes: Asset mix, sector exposure, regional exposure, market capitalization, and investment style.
What it excludes: Historical fund performance and expense ratios.
Example: If you hold a large-cap growth mutual fund with a 1.0% expense ratio, the tool might suggest an alternative large-cap growth ETF with a 0.05% expense ratio and a high similarity score (e.g., 9). This indicates the alternative provides similar market exposure. (Note: This is a hypothetical example for illustrative purposes only).
The Compounding Cost Calculator is for informational purposes only and is not a recommendation to buy or sell any security. M1 does not guarantee the accuracy or completeness of third-party data.
All investing involves risk, including the risk of losing the money you invest. The performance data shown represents past performance, which is not a guarantee of future results.
This is for informational and educational purposes only and does not constitute a recommendation, personalized investment advice, or a solicitation to buy or sell any securities.
This tool filters results primarily based on cost and asset category. It does not evaluate your individual risk tolerance, time horizon, financial goals, or the specific risk-adjusted performance of the securities compared. A lower-cost investment is not necessarily better or more suitable for your specific financial situation. You should read the Prospectus of any fund carefully before investing to understand the specific risks involved.
Prices are calculated using data from third-party sources. M1 is not responsible for the accuracy or timeliness of third-party data.
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