Double-checking Average Annual Return

Unknown

I have held an investment for many years.  I've made no recent trades, and the quarterly dividend is re-invested.  With Investing\Portfolio as of 5/11/2016, I see my Market Value on that date was $25885.  Today, on 5/11/2017, the Market Value is $28673.  My calculations derive an AAR1yr to be 10.7%.  The Investing Portfolio AAR1yr column shows 14.84.

Are the reinvested dividends somehow factored into the AAR?

Can someone tell me what other factors are involved?

Thanks in advance.

thecreator

Hi @ bakbrucekaiser ,

See this Article for Quicken related Questions and Problems: https://getsatisfaction.com/quickencommunity/topics/add-your-quicken-information-to-your-posts-plus-...

Since Quicken does not do Returns, your question might be best asked at:  https://ttlc.intuit.com/
TurboTax Support

Or at: https://www.quicken.com/support#contact-support

q_lurker

You might try the investment Performance Report customized to that security, that account, and that set of dates.  With the report, you have the option to show cash flow detail that would outline other relevant transactions. while regular dividends would appear as part of the cash flow for the return calculation, reinvested dividends will not, since their 'return' is reflected in the ending market value if the report.  

HTH

Unknown

Thanks.  That is helpful. 
Can you recommend a technical resource (publication or website) that best documents the way Quicken calculates their various columns?

q_lurker

bakbrucekaiser said:

Thanks.  That is helpful. 
Can you recommend a technical resource (publication or website) that best documents the way Quicken calculates their various columns?

Direct answer - No; in part because "various columns" is a vague term.  Some columns are downloaded data; some are calculated.  

The help files present more specific language on almost all the specific columns, but that language may also be vague.  Most of my knowledge in that area has been derived from sample situations I have created.  

In the help files, there is an equation for the Average Annual Return calculation, but my best understanding of that data came from exporting an Investment performance report to Excel and having Excel calculate its XIRR-function on the data.  I have always found Quicken to be in agreement with Excel (within about 0.02%, IIRC) when the data is fully consistent.  

If you have a specific interest in a specific column, I might be able to offer something -- or maybe not.  

Edward M Stewart

I am also looking into differences between Quicken's Annual Average Return (IRR) calculation and XIRR. Quicken's documentation seems problematically vague to me.

Edward M Stewart

Edward M Stewart said:

I am also looking into differences between Quicken's Annual Average Return (IRR) calculation and XIRR. Quicken's documentation seems problematically vague to me.

I just tried replication of Quicken's IRR calculation for a simple series of dividend cash flows and failed again.

See http://www.edwardmstewart.com/doing.html for a link to the spreadsheet I am using to attempt replication. 

Note: due to domain name transfers, it may be up to 48 hours before this document is visible at this URL.

q_lurker

Edward M Stewart said:

I am also looking into differences between Quicken's Annual Average Return (IRR) calculation and XIRR. Quicken's documentation seems problematically vague to me.

My Excel spreadsheet use for IRR calculations from Quicken takes on this form:



Whatever amounts appear in columns G and H (from Divs, Buys, Sells, etc.) get transferred into Column L with the XIRR calc then using that column and the dates.  

Tom Young

Edward M Stewart said:

I am also looking into differences between Quicken's Annual Average Return (IRR) calculation and XIRR. Quicken's documentation seems problematically vague to me.

Change that initial date in your spreadsheet to the day before - 12/31/2016 - and you'll get Quicken's 48.71% as that seems to be what Quicken actually is calculating on.  Shorter time periods typically magnify the effect.

Edward M Stewart

Edward M Stewart said:

I am also looking into differences between Quicken's Annual Average Return (IRR) calculation and XIRR. Quicken's documentation seems problematically vague to me.

Thank you for the help. The illustration above and comment about date-1 day on beginning market value appears to have cleared this up for me.

The following points seem most significant in closing this line of inquiry for me:
1 Use the investment performance report to get the cash flows quicken is using for the calculation.
2 Make sure the current market value of your security is correct by checking/manually editing price history (I had some erroneous values in there).
3 The method of calculating average annual return for accounts and investments is different as shown in the values below: (1) for investments, period-bounding market values AND cash flows within the period are used (2) for accounts, only starting and ending market values (sum of market and cash) are used.

 

I think this completes my double-check. I'll keep looking around for any issues in this area but am satisfied for now with a recommendation for the help documentation to be updated for clarity.

Ed

Tom Young

Edward M Stewart said:

I am also looking into differences between Quicken's Annual Average Return (IRR) calculation and XIRR. Quicken's documentation seems problematically vague to me.

Cash flows into and out of the Account for the period are also factored in.

q_lurker

Edward M Stewart said:

I am also looking into differences between Quicken's Annual Average Return (IRR) calculation and XIRR. Quicken's documentation seems problematically vague to me.

3 The method of calculating average annual return for accounts and investments is different as shown in the values below: (1) for investments, period-bounding market values AND cash flows within the period are used (2) for accounts, only starting and ending market values (sum of market and cash) are used.

That is sort of fundamental to the approach.  At the security level (for a specific investment), a dividend paid would be part of the cash flow out of that bucket, so the Div transactions would be listed.  For a dividend reinvested, the cash does not flow out of that bucket and the transaction would not be listed, though the effect of the increase shows up in the ending value.  If one chooses to take the dividend out as cash and immediately (same day) reinvest it that same investment bucket, the effect is the same but both the cash out and the cash in transactions appear in the list.  So I characterize that calculation as cash flow in and out of the bucket.  

At an account level, same bucket image applies, but it is hopefully a much bigger bucket.  In that case, the dividend that stays in the account is still in the bucket.  A dividend paid out of the account (DivX or Div and XOut), though would represent cash out, be a line item in the presentation, and be a transaction within the calculation scheme.  A dividend held in the account and later used to buy shares of some other holding is still in the same bucket.  

With that understanding, I don't see that the calculations for accounts or for individual securities are really any different, though the results for those two different buckets may differ.  I suspect that is the type of difference you are seeing with your test example.  The investment is showing a quite positive return, but the non-productive cash component reduces the performance of the bigger bucket.