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Return & % Return

bobdonoghue

Your return is the profit or loss you have on your investments, including income and change in value.
Return can be expressed as a percentage and is calculated by adding the income and the change in value and then dividing by the initial principal or investment amount.
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When I post a dividend on a mutual fund neither the Return nor %Return changes - why?

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Comments

Jim_Harman

The Return (%) columns in the Portfolio views are driven by data downloaded from Quicken's quote provider and are not affected by your transactions. I think you are looking for the ROI (%) column.

For periods of 1 year or more, I find the Avg Annual Return (%) columns most useful.

Boatnmaniac

@bobdonoghue - There are many different types of investment returns calculations. The Rate of Return is what you are seeing and it does not take into account dividend/interest income received as cash from a security. It simply looks at the current market value of a security minus the cost(s) of that security. Dividend & interest income paid out as cash does not add to the market value of that security since it goes into the Cash bucket. But if that dividend/interest income is reinvested into the security it then adds to the cost of the security and to the market value of it so it does get accounted for in calculating the Rate of Return.

The type of return that does take dividends/interest paid out as cash (plus reinvested dividends/interest) into account is the Return on Investment (ROI).

Another measure of return is the Average Rate of Return (IRR).

You can read more about these in Help by searching for "Investment performance calculations".

Also, on the Portfolio tab of Investing you can customize the view to select which of these you want shown in Portfolio by clicking on the Gear Options icon at the top right of the screen and then clicking on Customize current view.

bobdonoghue

Thank you for the response - however
The Quicken Definition - from the Customize View Menu is:
Return: Market Value + Cash Income +Sale Income - $Invested
Return%: Change in Value+ Dividends+ Cap Gains+Rtn of Capital (over some period)

Financial Dictionary
Return: The change in the value of a portfolio over an evaluation period, including any distributions made from the portfolio during that period.

bob

Jim_Harman

Quicken's Help is unclear, inconsistent, and confusing on these terms. Their definition of "Amount invested" is particularly counter-intuitive.

The most accurate info can be found by searching the in-product Help for "investment calculations" where it says for example

Amount invested
Amount invested is the actual dollar amount that you've invested in a security to date. Amount invested includes any expenses (such as commissions and fees) for that security. It does not include reinvested amounts, such as reinvested dividends, interest, or capital gains distributions.

By default, Quicken calculates the amount invested over your entire account history. Quicken can also report the amount invested for a specified date range. Change the date range by changing the Portfolio's From or As of date or by using the standard Portfolio columns Amount Invested 1-/3-/ 5-Year and Amount Invested YTD.

When you change the Portfolio date range, Quicken calculates the amount invested during that period to be the difference between the beginning amount and ending amount of the date range:
- Beginning amount: For shares purchased before the beginning date, Quicken uses the market value on the beginning date. For shares purchased after the beginning date but before the ending date, Quicken uses the actual cost of those shares.
- Ending amount: Quicken uses the market value on the date you specify. (Shares purchased after the ending date are not included in the amount invested.)
When the Amount Invested changes, so do the calculations for Return and ROI (%), which are based on the amount invested.)

Amount invested doesn't decrease when you sell shares (unless you sell all shares of a given security—then it goes to zero), whereas cost basis does. If calculations such as ROI appear lower than you would expect, it could be because the amount invested includes the cost of shares you no longer own.

An later on,

Return

Return represents the total return of a security: the current market value, plus the income taken out as cash, plus cash received from sales of shares, minus the amount invested.

Reinvestments are not explicitly added to the return, because they contribute to the market value, which is already factored in.

Note that Return (%) YTD is based on downloaded data and is not affected by changes in the As of date option.

q_lurker

bobdonoghue said:
...
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When I post a dividend on a mutual fund neither the Return nor %Return changes - why?

Note that the portfolio views can present Return, Return YTD, and Return for 1-, 3, and 5-year periods. Similarly, the views can present Return% for YTD, and 1-, 3, and 5-year periods. I assume these are what you are citing.

My comments deal ONLY with those parameters. Others such as ROI% and Avg Ann Return are different.

For me the definition of Return is clear as has been cited. The Definition of Return % is not clear, because the basis for the percentage (the denominator) is not clear. I have never had a clear understanding of the Return% calculation.

I set up a simple test case using VFINX as the security (and its prices over the last 5 years plus). I bought 100 shares Feb 27, 2015 at 194.73/share. I then added quarterly dividends (Mach, June, Sept, and Dec) of exactly and repeatedly $200 each quarter. I then looked at Return and Return% presentations for 8/12/20.

I found the Return values matching exactly as expected == Market value change + Div received. That held true for YTD (2 div), 1-year (4 div), 3-year (12 div) and 5-year (20 div).

For Return% YTD, that is documented as a downloaded parameter not subject to the current price in your file. That is, if you change the price for the As of date, the YTD Return% does not change. That further reinforces that adding, deleting, or changing dividends in that YTD period will not change that value. For this test, Quicken reported Return%-YTD for VFINX through yesterday (8/12/20) was 5.77%. For that same 8/1/20 closing price of 312.46, Yahoo Finance reports a YTD Return of -3.15%. I can offer no explanation for Quicken's number nor Yahoo's number. Just based on market value change, VFINX went from 298.16 to 312.46 per share this year -- a 4.8% (312.46 / 298.16) increase.

For the 1-, 3-, and 5-year Return% values, I see the same behavior. Changing the security price at the end does not alter those Return% numbers one iota. Likewise changing the dividend history does not change those values. I conclude that they also are downloaded generic parameters for the applicable security as determined by and provide by some third-party agency. FWIW, for VFINX, the 1-, 3-, and 5-year numbers are 19.36%, 13.52% and 12.25% respectively suggesting these are annualized values. As the 1-year market value change was close to 16%, the implication is that those values also include dividends paid out or reinvested.

@bobdonoghue I don't know why you are not seeing an impact of dividends on Return. You might check that the right security is assigned to the dividend received, that the accounts are correct, and that the dates are within the applicable time frames.  Based on what I know, you should not expect the Return% parameters to change based on dividends recorded.

Jim_Harman

Remember that for securities where the share price varies, any distribution will affect the share price and thus the market value: the share price will go down by the amount of the distribution. Thus I would not expect to see a jump in the return when the distribution is paid.

q_lurker

Jim_Harman said:

Remember that for securities where the share price varies, any distribution will affect the share price and thus the market value: the value will go down by the amount of the distribution. Thus I would not expect to see a jump in the return when the distribution is paid.

I take it your point is that market volatility and its effect on a day-to-day change in Return may be greater than the effect of the dividend (or interest or cap gain) distributions. I agree. But I'll also note an irritant to me -- different from mutual funds, the price on a stock usually drops when it goes ex-dividend and that may be days or weeks before the actual dividend is paid. In such a case, one might (no promises) see a drop in Market Value and thus Return on that ex-div date, and then get the bounce-back in the Return value when the dividend is actually paid.

Or stated another way: you can more clearly see the effects of dividends on Return for a constant price money market. For a security with daily volatility, the effects can be obscured.

Jim_Harman

Here is an extreme example of how distributions affect a security's share price: In 2018 the Harbor International Fund HAINX changed managers and had a huge portfolio turnover that led to a capital gains distribution of $21.70 per share on 12/17/2018. The share price on Friday 12/14 was $55.83 and on Monday 12/17 it dropped to 33.78.

If you started with 100 shares for a market value of $5,583 and reinvested the distribution, the distribution bought 64.24 shares at $33.78

You ended up with 164.24 shares @ 33.78 or $5,548, just about where you started.

I believe Quicken's ROI (%) and Avg Annual Return (%) calculations handle this situation correctly.

q_lurker

So HAINX closed 2017 @ 67.52; your 100 shares were worth $6,752 at the beginning of the year.

Assuming no other intermediate distributions, Quicken would calculate the 12/14/18 Return-YTD as $5,583 - $6,714 = -1,131.

On 12/17/18 following a hypothetical cash distribution, the Return-YTD would be 3,378 - 6,714 + 2,170 = -1,166 or as you indicate for the reinvested option 5,548 - 6714 = -1,166; both about where you started.

I believe Quicken is likewise calculating Returns (YTD, 1-, 3-, 5-, and 'total') correctly, as expected and specified.

I would caution that the ROI (%) could become different than "expected" if the distribution was reinvested vs buying shares such that the 'Amount Invested' then differed. That is a different discussion.

@Jim_Harman
I am not trying to be argumentative or pick at nits. I can't quite tell what your perspective is on the several Return values. I am simply trying to put forth they are correct and adequate for what they are supposed to be.

Jim_Harman

@q_lurker I agree. I was just trying to point out that that the OP should not expect a jump in the Return values because of a distribution.

A key here however is that the Return (%) numbers are downloaded from Quicken's quote provider with data as of the most recent quote update and are not calculated based on your purchases and sales or the As of date.