Affects investment performance behavior change

q_lurker

As best I can determine, the "Affects investment performance" setting as a category option only applies to Withdraw and Deposit 'cash' transactions and not to MiscInc or MiscExp 'cash' transactions.  Those later transactions are similarly cash events, but can also relate to a security where as the former cannot tie to a security.  

I recommend that MiscInc, MiscIncX, MiscExp, and MiscExpX transactions also be subject to the "Affects investment performance" checkbox.  (I am not aware of any other investment transactions that associate to a user-defined category.  If there are others, they too should be subject to the checkbox.)  The 'i' hover-over description (quoted below) cites "Cash investment transactions".  As currently implemented, that is not true.

I also suggest the label for the box be edited.  Both including and excluding the category from the calculations 'affects' the investment performance calculations.  IMO, 'Exclude from investment performance calculations" would be a more accurate description of the box's purpose.  In that same context, the 'i' hover-over description can be clarified.

As is:

Check this box if this income or expense relates to creating investment returns (for example, fees paid to an advisor).  Cash investment transactions with these categories won't be excluded when calculating IRR and the value of $10K.      

Better (I suggest)

Check this box if you want income or expenses related to this category omitted from investment returns (for example, fees paid to an advisor).  Cash investment transactions with this category will then be excluded when calculating IRR and the value of $10K. 

Rocket J Squirrel

q_lurker said:

As is:

Check this box if this income or expense relates to creating investment returns (for example, fees paid to an advisor).  Cash investment transactions with these categories won't be excluded when calculating IRR and the value of $10K.      

Better (I suggest)

Check this box if you want income or expenses related to this category omitted from investment returns (for example, fees paid to an advisor).  Cash investment transactions with this category will then be excluded when calculating IRR and the value of $10K.

I don't understand. Isn't your suggestion the exact opposite of the current description? Are you saying it's implemented backward?

q_lurker

Rocket J Squirrel said:

q_lurker said:

As is:

Check this box if this income or expense relates to creating investment returns (for example, fees paid to an advisor).  Cash investment transactions with these categories won't be excluded when calculating IRR and the value of $10K.      

Better (I suggest)

Check this box if you want income or expenses related to this category omitted from investment returns (for example, fees paid to an advisor).  Cash investment transactions with this category will then be excluded when calculating IRR and the value of $10K.

I don't understand. Isn't your suggestion the exact opposite of the current description? Are you saying it's implemented backward?

Their existing language strikes me as a double negative -- won't be excluded = will be included, doesn't it.  So yes, I think their language was opposite of what they intended.  I think it is implemented (programmed) correctly, but described in the hover-over backwards.  I could not find a spot in Help with any reference to this feature.  I recall the comment on the language came up when the feature was first introduced, but it has never changed.    

q_lurker

@Rocket J Squirrel -- following up on my memory, someone once asked --- 
https://community.quicken.com/discussion/7873784/help-me-understand-affects-investment-performance 

Rocket J Squirrel

q_lurker said:

@Rocket J Squirrel -- following up on my memory, someone once asked --- 
https://community.quicken.com/discussion/7873784/help-me-understand-affects-investment-performance 

LOL. My memory grows shorter every day. Glad yours still works.

But it seems to me that the current verbiage is correct even if a bit convoluted. It seems the intent is for fees to be included in the calculation of IRR and Growth of $10k when the box is checked.

As mentioned in the long-ago thread, I don't pay fees so never had use for this check box and haven't played with it.

q_lurker

The way it works is that if the box is NOT checked (the default and previously required position), then a payment of fees to an outside agency is listed in the report as a return and thus increases the performance of the account.  Taking the money out to pay management or advisory fees is no different than taking money out to buy a boat or go on vacation.  For me, that means the line item is normally included in the calculation.  

With the box now available, if the payment is assigned to that category, the line item is removed from the 'Returns' list and is no longer treated as beneficial to the overall performance.  For me, that makes the payment now excluded from the calculation.  

VERY simplistically

Case with box NOT checked

..............................Investments ........................Return     
Beginning Value = $100,000
Fee paid = ........................................................$1,000
Ending Value = .............................................$105,000
TOTALS  ------------$100,000 --------------------$106,000 >>> 6% IRR

Case with box checked

..............................Investments ........................Return     
Beginning Value = $100,000
Fee paid = ........................................................$1,000 strike this line
Ending Value = .............................................$105,000
TOTALS  ------------$1000,000 ------------------$105,000 >>> 5% IRR
   
The calculation is fundamentally -- What you took out and ended with as compared to what you started with and added in.  The feature request was to be able to edit out some of the 'take out' portion that was paid to the money managers producing the overall return.  

Rocket J Squirrel

Thanks, @q_lurker. I ran through your example and you are right.

It further confuses me that a fee paid -- an expense -- is added to the Return when the box is un-checked. That money is gone, it should not add to Return. Boat example notwithstanding, I must be failing to understand something fundamental about Q's calculation here.

Jim_Harman

Some might think that an investment management fee adds value due to the advice provided and thus should not reduce the reported performance. They soul want the fee included in the Return column.

I disagree, but it is personal preference.

q_lurker

Jim_Harman said:

Some might think that an investment management fee adds value due to the advice provided and thus should not reduce the reported performance. They soul want the fee included in the Return column.

I disagree, but it is personal preference.

And that is what the check box provides - a way to satisfy both preferences. 

With this idea, I am simply asking for the broader (and implied) scope of cash transactions to be addressed. One might pay such fees with a withdrawal transaction or with a MiscExp transaction. Both should receive the same treatment in the IPR calculation, IMO. 

My other fee I might choose to bypass is foreign taxes withheld from a dividend received. That needs to tie to the security and thus needs to use the MiscExp transaction. 

Mark Aloisio

I agree that the user should have the ability to treat investment advisory fees as a cost that is not included in IRR calculation.
Has Quicken agreed to add this ability?

q_lurker

@Mark Aloisio  Yes they did add that feature sometime in 2020 if I recall correctly.  You apply that selection when editing the Category details.  

This "Idea" post is to extend or broaden the implementation they provided.  As is currently, the transaction must be a Withdraw or Deposit action using that category to have the transaction excluded from the calculation.  I am asking for that exclusion also apply if MiscExp or  MiscInc transactions are used with the category.

(Excluding the transaction means the transaction is neither investment nor return in the overall performance calculation.)  

tabasco

"Global Investing Performance Standards" requires net (i.e after fees, commissions, etc.) numbers. Taxes, of course, are not included. Fiduciaries are legally required to use GIPS in reporting portfolios. If I ran the Quicken circus, money manager fees would reduce investment performance, and require that both GROSS and NET returns be included.

Jim_Harman

You can get the pre- and post-fee numbers, just not both of them at the same time.

To record the fees:
-- Sell shares if necessary to provide cash for the fees
-- Enter MiscExp transactions for the fees, using a dedicated Category. Leave the Security name setting blank in the MiscExp. (If you specify a security name, the fee will reduce the reported performance of that security. This over-rides the Affects investment performance setting below)

Use an Investment Performance report to view the performance.
-- To see the gross return, i.e. before fees, un-check the Affects investment performance box for the fee category. This will include the fees in the Returns column of the report.
-- To see the net (after fee) return, check the Affects Investment performance box for the fee category. 

As discussed above, the Help for the Affects Investment performance checkbox is very confusing.

q_lurker

@Jim_Harman

-- Enter MiscExp transactions for the fees, using a dedicated Category. 

I believe to allow the "Affects Performance" checkbox to be considered, the transaction action needs to be Withdraw, rather than MiscExp.  My "idea" (this discussion) is to expand the scope such that MiscExp transactions (and others) would follow the checkbox setting.  

Jim_Harman

@q_lurker,

I used the steps listed in my earlier post and QWin R31.20 behaves as described. Maybe they have resolved this problem without telling us.

It appears that the "Affects Performance" setting works for MiscExp transactions if you do not specify a security in the transaction.

FrustratedinCanada

Where is this "Affects performance" setting located? I have never seen it.

I have always used MargInt category to record Investment Mgt fees in order to get them reflected in IRR. No other category seems to work for this purpose. It works for the portfolio as a whole but not individual securities.

Rocket J Squirrel

FrustratedinCanada said:

Where is this "Affects performance" setting located? I have never seen it.

In the category edit dialog.