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Reinvested mutual fund distributions

Declinax

Reinvested mutual fund distributions in Fidelity IRA appear as if I had made additional purchase in Quicken, with the result that all my funds appear to be losing money. Is there a work around?

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Chris_QPW

This is one of the things that I think is very hard to get good information on for securities that pay a lot out in dividends. If you look at somewhere like Yahoo finance, you get just the prices which can be very deceiving for securities that get most of their gains from paying dividends.

In Quicken you want to look more at the Return than you do on the Gain/Loss field.
The Return field takes into account both the Gain/Loss and income (dividend/interest).

Note you can consider a reinvestment as a forced purchase that ignores the price, just like if you were doing cost averaging.

BTW just to make sure it is clear, what the others are describing is what would happen in a perfect world. The stock market is far from being a perfect world.

One might consider a dividend something that the company is paying you, but you need to look at it from the company's point of view.

If I have a company that is worth 10,000,000, and I pay out a 1% dividend from that company, I now have a company that is worth 9,900,000 in value. If the stock market was a perfect pricing system that is exactly what you would see (all the shares multiplied by the price would add up to 9,900,000). So, it would mean that you as a part owner of that company would in fact have no change in value, your shares and the cash would be the same as what your shares were worth before the dividend. It works just like if the security had a split.

Of course, in the real world that isn't how it works. The value of a given company is changing all the time, and there are people that are going to buy just based on trying to get the dividend and then get out and or for other reasons driving the price up or down. So, it is very hard sometimes to actually separate the fluctuation for these other reasons, from the actual change in value of the company now that it has parted with that cash to pay the dividend.

Chris_QPW

Cost Basis is for tax purposes only. You shouldn’t be using it or any calculation derived from it for understanding your real return on an investment.

All comments

bmciance

A reinvested dividend is, in effect, an additional purchase. (you got paid a dividend and used it to buy more shares) How would you expect it to be shown? Your dividend yield is positive but it is possible that your total yield could be negative taking these additional purchases into account.

Declinax

Thanks for response. I agree that it is an additional purchase, but the prior shares have lost money, not because of loss, but because that distribution/value loss was used to buy the new shares. Counting the loss from distribution AND a new purchase is double charging. I would appreciate any guidance.

Jim_Harman

Declinax said:

Thanks for response. I agree that it is an additional purchase, but the prior shares have lost money, not because of loss, but because that distribution/value loss was used to buy the new shares. Counting the loss from distribution AND a new purchase is double charging. I would appreciate any guidance.

When a security pays a dividend in cash, the security's value goes down by the amount of the dividend, so you come out even. When the cash is used to buy more shares, your cash decreases and the value of the investment goes up, so you come out even again.

Chris_QPW

Declinax

Thanks all for comments. In order to further clarify my question, and to show the Quicken inaccurate calculation, I will give two actual illustrations from my accounts at Fidelity.

Investment CSMCX:
Fidelity after cap. gain/dividend payout/reinvestment - Loss 0.26%
Quicken after cap. gain/dividend payout/reinvestment - Loss 12.24%

Investment: FDVLX
Fidelity after cap. gain/dividend payout/reinvestment - Gain 6.39%
Quicken, same information - Loss 2.98%

The amounts and transactions carried correctly into Quicken but Quicken, incorrectly I believe, ignores that the payouts with reinvestment were "free" as far as new money invested.

It appears that Quicken needs to correct this calculation.
Thank you.

Chris_QPW

What field in Quicken are you looking at for the 12.24% loss?

bmciance

I have found that the ROI% field gives me the correct performance. I calculate my own numbers and include the cost of all dividend reinvestments. I can come to exactly Quicken's numbers. This is different than how most brokers, including Fidelity calculate returns. But this is kind of a controversial subject. I work with an independent investment advisor who says that most brokers calculate returns incorrectly, particularly when dividends are reinvested. I'm sure if you ask Fidelity they will say they are doing it correctly but they are not. Their numbers are usually higher, not surprisingly.

Chris_QPW

@bmciance Yeah I was going to post back asking if the numbers Quicken vs Broker @Declinax matched before the reinvest because I doubt it, for the reasons you mentioned. Another thing that always comes up is the fact that a lot of the numbers Quicken gives are geared towards taxes and the brokers never calculate their numbers that way.

Not surprising the way most brokers calculate the numbers make you returns look better.

Anyways given a certain field, the help should tell how Quicken is doing the calculation.

Declinax

Thanks for comments. On portfolio view I have Ticker, Market Value, Cost Basis, Gain/Loss, Gain/Loss %, etc. The Cost Basis includes the original cost + reinvestment, but does not factor in that the reinvestments were due to distributions. The GainLoss % is a simple calculation from from market value and cost basis.

Chris_QPW

Cost Basis is for tax purposes only. You shouldn’t be using it or any calculation derived from it for understanding your real return on an investment.