How to correctly calculate the return on a mutual fund?

Matthew Friedman

So I have a mutual that I bought into in three separate transaction, in 2002 2004 and 2007. I paid a total of $4900 on those three transactions. My shares are now worth a little over $8600, but Quicken is reporting the cost basis as over $12000 for a roughly 30% loss. I'm not sure what's going on.

Over the course of owning the fund, there were reinvested dividends. In the register, some have the action ReinvLG and ReinvSh. A few have ReinvDiv. It appears Quicken is counting these as cost basis. Is that right? If so, is there a report I can generate that will tell me the rate of return on my initial ($4900) investment? I can't for the life of me find it.

Thanks in advance for the help!

volvogirl

Yes reinvested dividends increase your cost so you need to keep track of them for your taxes when you sell it.  A Reinvested Dividend is really 2 transactions, you got a Dividend and then you bought more shares with it.  It's like if they sent you the dividend and then you wrote them a check to buy more shares.  So you do probably have a loss on the mutual fund.  I don't know what reports you need.  What version of Quicken do you have?  Like Quicken for Windows 2017 or an earlier year?

Matthew Friedman

I'm on Quicken Windows 2016. What I'm looking for is a report that tells me essentially I invested $4900, it turned into $8600, that's a profit of 57%, broken down by year to give me an annualized return.

Sorry if I'm using terms incorrectly... its been a long time since econ/accounting classes.

I'm not trying to figure out a tax loss... I'm trying to get an idea of how this money grew. Does that make sense?

q_lurker

Go to the Investment Performance Report.  You can customize to that security only or subtotal by security - a wide variety of possibilities, including by year.

That report will show that you bought the MF shares at the tree different times.  The acquisitions through reinvestments will not be itemized.  Their effect will be included in the Ending Market value.  To get accurate data by year, you will need to be sure you have values for the fund at the end of each year.  (Quicken will use the last value for the year that it has in your data file for the fund.)

If you ask for a period other than a complete year, Quicken will be presenting the annualized return (the Average Annual Return).  You can find out more on the specific calculation through the Quicken Help file.

Average Annual Return is also available through Portfolio views, but only for set periods of time.  That approach is not as flexible.

NotACPA

Matthew Friedman said:

I'm on Quicken Windows 2016. What I'm looking for is a report that tells me essentially I invested $4900, it turned into $8600, that's a profit of 57%, broken down by year to give me an annualized return.

Sorry if I'm using terms incorrectly... its been a long time since econ/accounting classes.

I'm not trying to figure out a tax loss... I'm trying to get an idea of how this money grew. Does that make sense?

Sorry, but your initial investments (totaling $4900) had additional money added to them with each reinvested dividend, as volvogirl has already explained.

So, your cost basis is the sum of the $4900 PLUS the sum of all of the dividends that were reinvested (i.e., additional purchases).  Apparently, you received about $7,100 in dividends over the years and you DO have a capital loss of $3,400.

Inspect each of the transactions for that fund, to see if there are any errors ... but based upon the info you've provided, Q is calculating things correctly. 

And, if this MF was held in a taxable account, then you've (hopefully) reported all of those dividends received over the years and paid taxes on them.  And in either a taxable or non-taxable (IRA, 401k, etc) account you've got a loss.

Now, if you'd care to name the MF, we can look up some performance values for it.