portfolio fees

[robbinia]

Hi

I love this program and it has certainly helped me clarify my retirement planning.

I have a question on how best to handle portfolio fees. These are calculated/deducted based on a percentage of the portfolio value so will vary depending on how the portfolio does.

I cannot see an obvious way to handle these in the planner. I've tried putting in a fixed cost (inflation adjusted) based on starting portfolio value but that seems wrong and gave a bad outcome. I also tried instead reducing the investment return by the fee percentage so at least the fee element varies year on year - this gave a good outcome but feels wrong also.

is there a better way to handle these fees ?

Thanks!
Ian

[jimr]

Ian,

I'm glad you're finding the planner helpful.

The way most people handle fees is to reduce the rate of return by your fee amount as you mentioned above.

Unless I'm mistaken, this is a solid way to model it and shouldn't introduce any new error or imprecision into the model aside from the built-in imprecision of having to guess at the expected return and standard deviation and assuming a normal distribution for portfolio returns.

Jim

[robbinia]

Thank Jim for the reply - I'm happy to hear that reducing the rate of return is an acceptable way to model fees.
Regards
Ian