QM2017 Adding reinvested dividends to cost basis gives inaccurate Total Gain/Loss

RCinNJ

At first I thought there was a problem with how QM is adding reinvested dividends to the Cost Basis, but after finding this thread I realize QM is doing it correctly: https://getsatisfaction.com/quickencommunity/topics/when-adding-dividend-reinvestment-shares-it-adds... However, at least to my way of thinking, the way QM is calculating Total Gain/Loss is wrong, because it leads to misleading/incorrect results. I assume this is a general problem and not specific to QM and Vanguard. I have attached a screen shot to show what I mean.

As you can see (after opening the screenshot in a new window), I purchased $25,000 of a Vanguard fund on 12/5/16. I then received 3 dividend payments that were reinvested in additional shares on 12/23. This brought the cost basis up to $26,225.05. However, the share value of the fund has gone down so it is only worth a total of $25,665.47. In tracking "Total Gain/Loss" I would consider this a $665.47 gain on my original investment. The way QM is calculating it leads to a -$559.58 loss. Unless I'm mistaken in my reasoning, I want to know my gain/loss from my original investment because I consider dividends part of the return on my investments. If I did not reinvest the dividends the loss on the investment would -552.11, but all of the dividends ($1217.57) would be added somewhere as a gain. This would give me a net gain of $665.47 on my investment. I believe QM should give the same results whether I reinvest dividends or not. 

Am I wrong?

Unknown

Hold on now. You invested 26,225 but you now have 25,665. That sounds like a loss to me.

NotACPA

When you reinvest into a fund, you're buying more shares of the fund ... and thus adding to your cost basis.
It's no different than if the fund sent you a check and you sent it back with a message to "BUY MORE".

RCinNJ

"Hold on now. You invested 26,225 but you now have 25,665. That sounds like a loss to me." No. The total investment on 12/3 was $25,000.

RCinNJ

"When you reinvest into a fund, you're buying more shares of the fund ... and thus adding to your cost basis."

I understand that. Yes, the cost basis should increase. However, if they send me a check I would count that as a gain. The fact that I reinvest it doesn't change that. What I feel is incorrect is that QM isn't keeping track of how much money I made (in the Total Gain/Loss calculation), so calling the results a Gain or a Loss is at the least confusing.

At the end of any period don't you want to know how much more (or less) you have than what you started with? If I use the information that QM is giving me, in the Gain/Loss column it tells me I've lost money on my investment, when in fact I've made a profit.

I'm no expert, but as I understand it part of how many funds work is when dividends are distributed it reduces the asset value, so the difference between an increase in the values of the stocks in the fund is not really that different from the dividends that are received by the fund, except the dividends are distributed to the fund holders mostly for tax purposes. I just have to believe there's a more sophisticated way to calculate gains and losses. You know, like your brokerage house does when they tell you how you are doing.

Unknown

Unfortunately you've convinced yourself you have a profit on your investment. Evidently, nothing we say will be changing that.

RCinNJ

RCinNJ said:

"Hold on now. You invested 26,225 but you now have 25,665. That sounds like a loss to me." No. The total investment on 12/3 was $25,000.

I meant to type: "on 12/5"

RCinNJ

"Unfortunately you've convinced yourself you have a profit on your investment. Evidently, nothing we say will be changing that."

Sorry if I'm not catching on. Can you explain to me how when I invest $25,000 and later have $25,665 I don't have $665 more than when I started? The value of the shares have gone down, but I have more shares. Alternatively, can you explain to me how I lost the $559.58 that the Total Gain/Loss column calculates?

My problem is with the calculations made in the Total Gain/Loss column. If QM can't do better so be it, but can you convince me that what it is reporting is of any use in telling me how much I have made or lost on a single investment?

Unknown

You are confusing total return on investment (ROI) with gain or loss on investment.

RCinNJ

"You are confusing total return on investment (ROI) with gain or loss on investment."

You may be right, and I'm doing some research on the difference. I'm certainly not an expert. I did find this Quicken article "Calculations for Average Annual Total Return (IRR)" Updated: 04/19/2016. https://www.quicken.com/support/calculations-average-annual-total-return-irr However, I'm not sure that what the article describes as Quicken being able to do re: calculating ROI doesn't apply only to QWin.

The article says "Quicken displays the average annual return in the investment performance report and graph, in Portfolio columns, and in the Average Annual Return snapshot." Does any of this exist in QM2017?

In the end I see that gain/loss is calculated as (Current Price – Purchase Price)/Purchase Price which QM is certainly doing. The only question is whether it is standard accounting practice to include reinvested dividends in the purchase price, which is what QM is doing.

It is obviously easier for QM not to account for dividends differently from purchases since this is what is already being tracked for Cost Basis, but is it the best thing that QM could do for providing the most useful info for Gains/Losses to its users??

NotACPA

For a moment, forget about the reinvestments.  You originally invested $25,000.  The value (per your graphic) of that investment is now $24,447.89.  231.011 shs @ $108.22 = $25,000.  Each of those shares is now worth $105.83 or a loss of $2.39 on each share.

WHY isn't that enough to convince you that you've got a loss on the investment?   The amount of each reinvestment lot is also showing a loss.

I.E., you've got a loss on the investment.  It's really quite simple.

RCinNJ

I guess I'm stupid. However, I received 11.5 shares that I did not pay for as part of my return on the investment. Adding in these shares there is a small gain over what I paid for the investment. I am interested in total return not just the value of my original shares. That is what I consider my gain or loss on an investment. If there is a stock split and I end up with twice as many shares I haven't made anything. The fact that my shares are now worth 1/2 as much does not mean I lost money. To me, only the total value of the investment minus what I paid has any meaning.

volvogirl

RCinNJ said:

"Hold on now. You invested 26,225 but you now have 25,665. That sounds like a loss to me." No. The total investment on 12/3 was $25,000.

No you are wrong. The total investment includes the reinvestments. You actually did buy more shares. You don't want to pay tax twice on the dividends do you? Have you sold all the shares yet?

volvogirl

You did pay for the 11.5 shares. You have to think of the reinvested dividend as really 2 separate transactions. You received a dividend and then you bought more shares. Maybe you better change your account at Vanguard and have them start sending you the dividend and then you make a purchase to buy the new shares.

RCinNJ

RCinNJ said:

"Hold on now. You invested 26,225 but you now have 25,665. That sounds like a loss to me." No. The total investment on 12/3 was $25,000.

"No you are wrong." Maybe, but I don't think you are accurately restating what I am trying to say.

Yes you are correct, the additional shares (which are part of my return on the investment since I received them when I reinvested the dividends) should get added to the Cost Basis and kept track of as separate lots with different purchase prices. That is needed for tax accounting and QM is doing a fine job of this. This is covered by the Cost Basis column.

My question is purely about the way the Total Gain/Loss column is being calculated. This column has no effect on tax reporting unless I'm stupid enough to use the numbers in this column to report earnings/losses to the IRS. This is for my benefit as an investor trying to get an idea at a glance of what my gain or loss on an individual investment is. Frankly it would be more useful if there was a way to see an annualized return on investment, but that is a different matter.

RCinNJ

volvogirl said:

You did pay for the 11.5 shares. You have to think of the reinvested dividend as really 2 separate transactions. You received a dividend and then you bought more shares. Maybe you better change your account at Vanguard and have them start sending you the dividend and then you make a purchase to buy the new shares.

"You did pay for the 11.5 shares." Yes, using proceeds from the original investment. My problem with how QM is calculating the Total Gain/Loss column is that it would give different total answers if I reinvest or don't reinvest dividends.



As you can see by looking at my screenshot, if instead of reinvesting the dividends I took them as cash I would have shown a loss of $552.11 on my investment and a gain of $1225.05 in my cash account for the dividends. Instead the Total Gain/Loss column shows a loss of $559.58 on this investment. This column does not effect the total value in the account, so it is not about keeping an accurate tally of the total value of the account. This is all about the reported percentages in the Total Gain/Loss column, and whether it makes sense the way it is being calculated.


"Maybe you better change your account at Vanguard and have them start sending you the dividend and then you make a purchase to buy the new shares." I don't understand your comment. Do you mean so I don't get bothered by how Quicken calculates or because I'm stupid and would understand your point if I did? Or perhaps you misunderstand my concern with understanding how QM is doing its math and whether it complies with standard accounting practice with concern over the ultimate value of my investments? I haven't sold it so the gain or loss is academic. However, I still have more money in the account from this investment than I started with, which I consider a net gain.

Unknown

RCinNJ said:

I guess I'm stupid. However, I received 11.5 shares that I did not pay for as part of my return on the investment. Adding in these shares there is a small gain over what I paid for the investment. I am interested in total return not just the value of my original shares. That is what I consider my gain or loss on an investment. If there is a stock split and I end up with twice as many shares I haven't made anything. The fact that my shares are now worth 1/2 as much does not mean I lost money. To me, only the total value of the investment minus what I paid has any meaning.

No, you're not stupid, and Vanguard doesn't think your stupid either. Take a look at this article....
https://investor.vanguard.com/taxes/cost-basis/basis-isnt-performance?lang=en

RCinNJ

RCinNJ said:

I guess I'm stupid. However, I received 11.5 shares that I did not pay for as part of my return on the investment. Adding in these shares there is a small gain over what I paid for the investment. I am interested in total return not just the value of my original shares. That is what I consider my gain or loss on an investment. If there is a stock split and I end up with twice as many shares I haven't made anything. The fact that my shares are now worth 1/2 as much does not mean I lost money. To me, only the total value of the investment minus what I paid has any meaning.

Thanks for the link!

smayer97

RCinNJ said:

I guess I'm stupid. However, I received 11.5 shares that I did not pay for as part of my return on the investment. Adding in these shares there is a small gain over what I paid for the investment. I am interested in total return not just the value of my original shares. That is what I consider my gain or loss on an investment. If there is a stock split and I end up with twice as many shares I haven't made anything. The fact that my shares are now worth 1/2 as much does not mean I lost money. To me, only the total value of the investment minus what I paid has any meaning.

Link provides some good info but note that the info is not presented very well. For better comparison, ending price for Fund B should also be set to $11 and the reinvested dividends should be at the then market value. This would give a better comparison and better understanding, IMO. But the info is still useful nonetheless.

(If you find this reply helpful, please be sure to click "Like", so others will know, thanks.)

Unknown

volvogirl said:

You did pay for the 11.5 shares. You have to think of the reinvested dividend as really 2 separate transactions. You received a dividend and then you bought more shares. Maybe you better change your account at Vanguard and have them start sending you the dividend and then you make a purchase to buy the new shares.

RCinNJ you are correct.  That is the way Fidelity figures cost basis.  Dividends are not added to your cost basis for calculating Total Return.

Unknown

I've read thru this thread 'so far'...  because I had the same question RCinNJ has been expressing.  The answer seems to be that Quicken includes reinvested dividends into the cost basis and there is no option to change that.  I understand all the arguments for including and excluding, so the solution is for Quicken to give us an option (or a new column) for both.  BTW...  Fidelity on-line displays DO NOT include reinvested dividends as part of the cost basis, just like RCinNJ and I want.  Have a nice day!

RCinNJ

Anyone know if this has been added as an option in QM2018?

Concordman

I don't think this has changed in QM18.. Would like to be wrong.. 

smayer97

Concordman said:

I don't think this has changed in QM18.. Would like to be wrong.. 

No mention of it in any release notes...

(If you find this reply helpful, please be sure to click "Like", so others will know, thanks.)

Unknown

Concordman said:

I don't think this has changed in QM18.. Would like to be wrong.. 

OP, and others who are thinking rationally about his subject, rest assured that this is an easy calculation that you can do yourself.


Take the amount that you have contributed out of your wage income (the cash you contribute to investments after expenses - in the accumulation phase of life), and put that down on paper. You can get this amount by tallying all account contributions, minus commissions. In your case that is $25,000.


Next, add up all of your dividends received. Write that number down in another column.


Find your total market value from today. Write down that number in a 3rd column.


Subtract the market value from your original cost, and divide by the original cost. That is your total return with dividends reinvested. In this case your total return is 2.6%.


You can then take the total dividends paid column and divide that number by the original cost, and this will give you your Yield On Cost (YOC). This number can help you understand how much of your original investment has been paid back in dividends. In your scenario, your YOC is 4.87%.


Total dividends = $1,217.57

Original cost = $25,000

1217.57/25000 = 4.87%

Unknown

Concordman said:

I don't think this has changed in QM18.. Would like to be wrong.. 

I am looking for the same function. As the OP said that
function in quicken would improve tracking of performance based on initial
capital invested. If one tracks multiple accounts with varying deposits added, thereby
changing the initial capital invested it would be a great function to have. It
would substantiate the performance graph by comparing cost/basis vs initial
capital.

TG26

@ RCinNJ, I know what you are looking for as I have been searching for the same.  I believe I have found what shows me both calculations;
1) the "real cost basis" which includes the dividends being reinvested and such (but not really what you and I are looking for), and
2) a look at an overall performance of an account or asset based on total 'out of pocket' investment vs overall returns of the investment or account.  

To see the overall returns (#2), you want to look at ROI%.  I have ROI-YTD, ROI 1-yr, ROI 2 yr, etc i customized on my 'Portfolio" tab under the "performance" dropdown of my Quicken Mac subscription.  

To give an example, one of my investments shows 10.3% for ROI YTD.  When I flip over to the 'portfolio value' dropdown, it shows me my overall cost bases compared to market value (which is #1 above) and its 7.3%...which includes dividend reinvestments.  

Hope this helps and is indeed what you are looking for.

TG26

Also, helpful link that explains ROI vs some other definitions that Quicken uses.  https://www.quicken.com/support/about-key-investment-performance-calculations-used-quicken