Most people have heard of the Rule of 72. It’s a way to estimate how long it takes for your money to double at a given rate of return. Less well known is that this rule can be used to estimate how long it will take for investment fees to consume half your portfolio.
The Rule of 72 says that if multiply your rate of return by the number of years you’ll earn that return and the answer is 72, you’ll roughly double your money. So, if you earn 6% each year, it takes about 72/6=12 years to double your money.
When it comes to fees, the same rule works for finding the number of years it takes for fees to consume half of your money. For example, if you invest in Investors Canadian Growth Fund, the total fund costs each year are 3.02% of invested assets. So, it would take about 72/3.02=23.8 years for half your money to be consumed in costs. This rule just gives an estimate, but it’s pretty close. The actual time is just under 23 years.