Quicken Community is moving to Single Sign On! Starting 1/22/21, you'll sign in to the community with your Quicken ID. For more information: http://bit.ly/CommunitySSO

Red Dots -A Compliment to the Blue Dots and Green Dots [edited]

CG
CG Member ✭✭
edited March 2020 in Investments (Windows)
Hello,

Please see the attached screenshots from a 401 K Account. Please note the jump in the cost basis in the last few days. Not sure why this is happening.

Just few days ago, I sold about 50% of shares in 2 of the funds in my account and bought another fund. I did not bring in any new money into this account for these transactions. But the graph shows a JUMP in the Cost Basis! Why is that shown as an increase in the cost basis? This should be considered a show it a Cost Basis neutral transaction.

I tried experimenting with the way Quicken registers the (Bought or Sold) transactions vs. (BoughtX or SoldX) transactions. This is done under "Use cash for this transaction". I still get inaccurate and bizarre results!

Could anyone please explain what is going on? Is this a glitch in the Quicken software or it is me causing this?
1
1 votes

New · Last Updated

Best Answers

  • CG
    CG Member ✭✭
    Accepted Answer
    Hello,

    Considering the unprecedented circumstances created by Corona Virus pandemic and the worldwide state of emergencies, I appreciate you taking the time to reply and making this conversation as a way of temporary distraction from our anxieties.

    I think this subject would be better served if I ask for a reset, starting by revising the title of this conversation tread and leaving the Cost Basis out of it. Obviously my understanding of Cost Basis calculation was not correct. So I thought it may be a good idea to introduce a new feature represented by "red dots" to compliment the blue and green dots.

    Starting from scratch, I would like to rename the title:

    Red Dots -A Compliment to the Blue Dots and Green Dots

    Then referring to the red dots as I had previously described, I ask this fundamental question:

    Do we not see the need and benefits of what red dots visually represent?

    Even if the details of integrating it into current Quicken software program seem to be complicated, I think the concept and results would seem very basic and intuitive to vast majority of Quicken users.

    Yes, as you have pointed out, there will be many nuances that must be considered when it comes to programming this feature as a new added module. But I hope you would agree that those details would be sorted out once the smart and experienced folks at Quicken get into it. … And the new version of Quicken would be better product because of it.

    For now, let's hope that we can put this COVID-19 Pandemic behind us very soon.

    Thanks,

Comments

  • Sherlock
    Sherlock SuperUser ✭✭✭✭✭
    edited February 2020
    Let's suppose you purchased a lot for $1, subsequently sold the lot for $10, and used the $10 to purchase another lot.  Your original cost basis was $1 but the cost basis is now $10.
  • CG
    CG Member ✭✭
    Thanks for your response. As a follow up question, would it possible to shown and track the original investment $ in the same graph along with cost basis and the total value of the investment. Because after all, that is what would matter to an average investor: How much $ did I put into my account and how much overall $ gain I have had over time?

    Thanks you
  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
    It is a little more complicated than that. What should it show if you have added or withdrawn money over time?

    IMO Quicken's best measure of long term investment performance is the Investment Performance Report and the corresponding Avg. Annual Return (%) columns in the Investing > Portfolio views. The IRR calculation behind these reports takes into account deposits, withdrawals, transfers, dividends, etc.
    QWin Premier subscription
  • CG
    CG Member ✭✭
    Hi,

    What if the transactions that are boughtX (into the account) and soldX (out of the account) would be treated as change to the cost basis on the investment graphs, But the transactions that are bought and sold within the same account AND all the dividends, capital gains, etc. would be treated as no change to the cost basis (blue dots) on the investment graphs …. and I think visually that graph would be more representative of investment performance over time.

    For example, If $1000 is put in an account and that is the only investment into that account, the cost basis stays a flat line, no matter how many transactions and gains and reinvestments occur within that account.

    By the way, I see "Avg. Annual Return (%)" columns for YTD, 1-year, 3-Year and 5-Year. But I do not see one to choose for the life of the investment. I have looked under "Options" Setting / Customize current view... But can't find it?!! All I see "ROI (%)". But that is not the same as IRR you are referring to. Am I Correct?
  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
    edited March 2020
    As discussed above, cost basis is used for capital gains tax computations and is not valid as a component of investment performance if there has been trading activity.

    You can see your account level IRR for any time period by setting the date range on the Investment Performance report. Another advantage of the report is that you can see all the transactions that go into the calculation.

    CG said:

    By the way, I see "Avg. Annual Return (%)" columns for YTD, 1-year, 3-Year and 5-Year. But I do not see one to choose for the life of the investment. I have looked under "Options" Setting / Customize current view... But can't find it?!! All I see "ROI (%)". But that is not the same as IRR you are referring to. Am I Correct?
    I agree it would be helpful to have an Avg. Annual Return (%) column in the Investing > Performance views that would show the IRR since purchase. Practically speaking this would be since the date you have selected in the Portfolio Preferences "Show return calculations from" setting.

    ROI (%) is a different calculation. It is a straight percentage gain or loss, not annualized, and does not consider compounding.

    QWin Premier subscription
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    edited March 2020
    "Total investment" vs. the "value of securities" is kind of an interesting number, but it's virtually meaningless as any sort of metric of performance because it lacks a time component
    If I told you "I invested $1,000 and my securities are now worth $2,000"  you might be impressed with my investing prowess, until I tell you that it took 30 years for that to happen. On the other hand you might be unimpressed, thinking I'd owned that security for a long time, but would change your mind when I told you that gain was achieved in one month.  And total investment vs. value of securities becomes even more meaningless when the cash flows in and out of an account or, if there's only cash inflows, it happens over many years.  So I wouldn't strain too hard trying to get Quicken to somehow spit this number out.
    The IRR, itself a very imperfect metric, at least tries to take the time value of money into account.
  • CG
    CG Member ✭✭
    I appreciate everyone's response and feedback. I do understand and agree with the purpose and method of calculating Cost Basis, which is for capital gains tax computations.

    But, I guess what I am advocating here is mainly to make the performance graphs more intuitive and user friendly. Cost Basis lines on the graphs are somewhat meaningless and confusing to a average person. Believe me, if I try to show and explain it to my teenage daughter who is just learning about saving and retirement investment, it would not be easy.​ So, what would be wrong if quicken graphs could give the user the option to activate an additional line along with Cost Basis? The new line on the graph would track the cash in and cash out of an account at any given time.​ Simply, this new line would be set up to track BoughtX, ContribX, SoldX, Withdrawal, Removed, etc.​ I believe, this can make it even easier to explain the Cost Basis line relative to the actual portfolio performance.

    A simple example: If an initial investment in an IRA account was just a lump sum $2000 and that was the one and only contribution into the account, the line would remain a flat line, no matter how many times the Portfolio Value (green dots) and the Cost Basis (blue dots) go up and down over the years when the account owner changes its portfolio holdings.

    This new added graph, would be a simple and intuitive representation that can compliment the IRR and other performance metrics. If the Cost Basis are the blue dots, then the net (out of pocket) investment could be the red dots ….. If money is deposited into the account the red dots jump, if money is withdrawn, the red dots drop.​

    So, ….why not having this option along with Cost Basis blue dots?

    Thanks,
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    Ahhh - a change in plan.

    But first a nitpick -- Cost basis is used in a uniform fashion for capital gain calculations without regard to tax consequences.  The same calculation is used within tax-deferred or tax exempt accounts as is used in taxable account.  

    I would be agreeable to a different presentation on your portfolio balance / cost basis graph.  

    1)  Why deduct "withdrawals" from the "contributions"?  Suppose you put $100 into the account, the account grows to $500 over some period, and you withdraw $50.  Why does that $50 come from "contributions" rather than "profits"?  I can understand where you might be coming from for that perspective, but others certainly might have a different look at that case.  Quicken programmers need to see multiple facets.

    2)  Continuing in that direction, does the "net investment" bottom out at $0, or go negative.  If the withdrawal in the prior example is $200, what would you expect the red-dots to show?  Why is that the right viewpoint for Quicken to program?

    3)  Some MF families require a separate account for each MF held.  In such cases, a rebalance from Fund A to Fund B becomes a transfer (effectively a SoldX / BoughtX pair).  Are those to be treated as withdrawals and contributions?

    4)  Someone might well choose to look at that Portfolio Value / Cost Basis graph using only a subset of an account or a subset of the entire portfolio - perhaps only Stocks, Bonds, selected mutual funds, or stocks recommended by one source.  In such a subset, how should both contributions and withdrawals be determined?  How should dividends be treated?

    My point in these types of questions is to touch on a few of the issues that need to be defined to the programmers in order to accomplish their task.  These are not, in my opinion, cut and dried questions with singular answers.  That is where I see the difficulty in addressing your revised idea. 

    Your thoughts have parallels with the Amount Invested parameter that Quicken maintains for portfolio views.  That parameter seems to work OK for buy-and-hold situations; I suspect your presented idea would as well.  Amount Invested seems to fall apart more in accounts that involve more trading and selling.       
  • CG
    CG Member ✭✭
    Hello,

    Thanks for the clarification on the Cost Basis.​

    I hope the attached screenshot can explain my points more than what I can describe in words.​
    Visually, the blue dots mean very little to convey the actual relationship between the portfolio value vs the out of pocket investment as I have shown as a red line to represent my suggested red dots.

    Also, my response to your questions:​

    1) The math should be fairly simple for programming the "red dots" - only track the inflow and outflow of money, regardless of source. In your example, the red dots starts at zero, go up to $100, then the red dot lines stays flat until $50 is removed from the account and continue as a flat line until another inflow or outflow.

    2) The red dots should go negative, because it is only tracking the inflow and out flow regardless of source and the amount.​

    3) For your MF example, yes the same principles would apply to any individual account that is created in Quicken. Effectively SoldX is an outflow and BoughtX is an inflow. So when the graph is set up to show an individual account, the inflow and outflow will be shown accurately for that individual account. And when the graph is setup to shown and track multiple accounts together, then the outflow from one fund as an inflow to another fund will effectively cancel each other out. In a graph that would represent multiple accounts in the investor's portfolio, the red dots would be essentially treat the transfers of fund or cash from one account to another account as a non-event transaction and the red dots do not move on at all for the date that the transfer is registered in Quicken​

    4) As described above, no matter the source or type of accounts, the red dots only would track the inflow and outflow. If money is moved in and out then the red dots move. Reinvested interests, dividends, or capital gains move the cost Basis blue dots, but do NOT move the red dots. Even if for example, the dividends are not reinvested in the same stock or fund but stay in the same account as cash, then they will NOT move the red dots. But as soon as they are transferred out to another account, then they are considered outflow out of that account and red dots are ticked lower and ticked up for the account that receives it as inflow. One item that can be open for debate is Employer match to 401K plan - Should it be treated as employees out of pocket (to move the red dots) or not? I think employer match should also move the red dots higher. After all, it is still indirectly the employee's salary and his out of pocket money.

    My suggestion of "red dots" is mainly to provide a VISUAL representation of the investors out of pocket money that should be added to the Portfolio Value graph. It helps us to see how the portfolio performing compare to our hard earned out of pocket money. … hopefully the green dots always stay far above the red dots, and nothing like the market meltdown we have seen in the last couple of weeks - nose diving below the red dots :-(​
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    Not meaning to ignore you on this.  Sorry for the delay.  

    You are seeing this as a very simple computation; I am seeing it more complex.

    Upon review,I think you will find (should see in my opinion) the the investment performance report (IPR) is presenting all the transactions that create jumps in the line (red dots)you are trying to have plotted.  There are two catches.

    1)  Each manner in which one might customize that IPR changes the list of transactions that get presented.  That is the complexity I am trying to establish with you.  You might start with all (investment) accounts and all securities, including the 'No securities' selection.  What will be listed will be transactions that that add to the group of accounts (Investments) and transactions that lessen the group of accounts (returns).  Those are substantially the transactions you are focused on.  You may also see transactions that move assets from one account to another, but those should balance each other for no net effect. 

    If you create a subset of accounts, you'll likely see a different set of transactions reported in the Investments and Returns columns.  If you create a subset of securities and especially if if you eliminate the 'No Security' selection, you'll see an still different set of transactions.  Subtotal by security leads to different transactions reported.  

    I would hope that type of exercise would demonstrate the scope of possibilities Quicken has to deal with in addressing your 'simple' calculation and presentation.  It is not just a couple of transaction types that need to be monitored and evaluated, it is all transactions.  At the same time it also demonstrates that Quicken has much of that programming already available. 

    2)  The second catch is the starting points.  For that report, Quicken starts at the date specified for the graph.  If I ask for the Investment performance from 1/1/yy,the starting value is the closing value on the prior date. 

    For your interest, I might expect the starting value to be some other point.  If 5 years ago you put in $1000 and added nothing else, you'd like the red dots to start at $1000, even if the graph range started much later.  That means a different calculation for Beginning Investment Value.  Certainly not an insurmountable task but one needing to be carefully thought out.            
  • CG
    CG Member ✭✭
    Accepted Answer
    Hello,

    Considering the unprecedented circumstances created by Corona Virus pandemic and the worldwide state of emergencies, I appreciate you taking the time to reply and making this conversation as a way of temporary distraction from our anxieties.

    I think this subject would be better served if I ask for a reset, starting by revising the title of this conversation tread and leaving the Cost Basis out of it. Obviously my understanding of Cost Basis calculation was not correct. So I thought it may be a good idea to introduce a new feature represented by "red dots" to compliment the blue and green dots.

    Starting from scratch, I would like to rename the title:

    Red Dots -A Compliment to the Blue Dots and Green Dots

    Then referring to the red dots as I had previously described, I ask this fundamental question:

    Do we not see the need and benefits of what red dots visually represent?

    Even if the details of integrating it into current Quicken software program seem to be complicated, I think the concept and results would seem very basic and intuitive to vast majority of Quicken users.

    Yes, as you have pointed out, there will be many nuances that must be considered when it comes to programming this feature as a new added module. But I hope you would agree that those details would be sorted out once the smart and experienced folks at Quicken get into it. … And the new version of Quicken would be better product because of it.

    For now, let's hope that we can put this COVID-19 Pandemic behind us very soon.

    Thanks,
  • Jim_Harman
    Jim_Harman SuperUser ✭✭✭✭✭
    I suggest you make the title describe what you are looking for: "Provide a Portfolio Value graph with Net Contributions" or something like that.

    But I also think you should carefully consider the implications of @q_lurker's comments above. Because this idea has drifted considerably from the original topic of this discussion, you might want to start a new Idea post that refers to this discussion and focuses on what you are now asking for.
    QWin Premier subscription
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    I flagged this discussion suggesting it be moved to an idea area and changed to an idea. 
  • CG
    CG Member ✭✭
    Great Idea. Thank you.

    I see that the title was already edited. So will this discussion continue here?

    Red Dots - A Compliment to the Blue Dots and Green Dots
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    Now that this has been revised to an Idea, be sure to vote  it up, top of page 1 aka very first post, click the Up arrow.  
Sign In or Register to comment.