Investment Income (Div or Int) does not properly contribute to RoI computation

ggold91364

I have been working with a Quicken Level 3 support person now for hours on this and we have not resolved the issue. I have some investments, like a mutual fund, that keeps a $1 stable value and pays dividends. The dividends properly show up in my register but they do not contribute to Quicken's computation of the RoI. One of the Forum users commented that on stocks the payment of a dividend reduces the stock price so that would compensate. But not all investments that pay dividends behave that way. In my investment the dividend goes into my cash account and the stock price stays fixed at $1. Quicken should be including the dividend payments and dates into a proper computation of RoI. You guys have the correct formula for RoI but you're not implementing it correctly in this case.

Jim_Harman

See this Help page
https://help.quicken.com/display/WIN/Tell+me+about+key+investment+performance+calculations+used+in+Quicken

[Correction after reviewing my results] Quicken's ROI (%) calculation for individual securities includes dividends, whether received in cash or reinvested. Account level ROI (%) when there is trading in the account is another issue.

But a better measure of long term investment performance is the Avg. Annual return (%) columns in the Investing > Performance views or as shown in the Investment Performance Report. These represent the Internal Rate of Return (IRR) of your investments.

Jim_Harman

You are looking at the ROI (%) columns in the Investing > Portfolio views and not different columns, right?

The Return (%) columns, for example, are downloaded with the quote data and are not affected by your transactions.

ggold91364

Jim, I appreciate your reply and I absolutely agree with you that the formula you pointed me to is the correct formula for computing what I want: The RoI which is also known in the parlance as the Effective annual rate of Return.

The PROBLEM is there is apparently some internal defect in Quicken's implementation of this formula. IT seems to be working just fine for stocks and publicly traded bonds. For those holdings Quicken is correctly computing the RoI.

However, I have a few investments (some of which do not automatically pull down with Quicken so I have to manually enter those transactions) for which the RoI is ZERO and the dividends, while appearing in the transaction record and while correctly associated with the parent investment and with the correct TYPE (Dividend Income) do NOT contribute at all.

I was on the phone sharing my screen this morning for HOURS with Level 3 support and I showed the support guy what was happening. He was totally mystified. Our call eventually went dead and I've been unable to connect with him again. I think they are having phone system problems.

Jim_Harman

Are the dividends received in cash or reinvested? And let's use the exact title of the Portfolio view column - ROI (%) XXXX where XXXX is the time period.

Or are you looking some other Return column?

q_lurker

The RoI which is also known in the parlance as the Effective annual rate of Return.

Not True.  ROI is NOT annualized.  I think you are confusing IRR (in Quicken Avg Annual Return) with ROI.  (Note:  ROI further gets mangled in Quicken because of Quicken's use of and definition of Amount Invested, the denominator.  But I don't know that impacts your circumstance, yet.)

I created a test case - buying 100 shares of a One-Dollar Fund, and receiving quarterly dividends.  The Transactions:



The performance numbers from a portfolio view:
(*that first ROI% with the arrow is ROI % YTD)

It is clear to me that the dividends paid in cash are included in both the IRR and the ROI calculations.  Note again, @Jim_Harman's comment - Return % data are generic downloads for applicable securities, not dependent on your data file.

Where are you looking and what are you seeing, specifically.   

ggold91364

I apologize. You're right! But I'm also right about Quicken not incorporating the distributions in all cases. But now I know WHY and, I'll have to admit that Quicken is Off the Hook on it as you will agree I'm sure. Let me say that, I'm new to this Forum so I do not yet know how to send you a screen shot of what I see in the Portfolio and other screens, but I can describe what's happening in a way you'll understand.

It turns out I have two investments at Schwab that are limited partnerships and it's both of those that are unable to compute the rate of return. It actually shows BLANK ENTRIES in the Avg annual return columns of the portfolio screen for these investments. Nonetheless, the account VALUE is in agreement with the broker statement. Here's what's going on...

These investments distribute CASH to my Schwab account. But I noticed that the TRANSACTIONS screen tells the story. The cash has the ACTION description of "ADDED". In fact, for these investments ALL of the transactions are ADDED types because these investment earn all of its returns from rents, interest, dividends and even capital gains from selling some of their holdings! So Quicken has no way to attribute the cash distributions until the TYPE of earning that has been distributed has been identified!

At year-end I receive (quite late) a K-1 form that ultimately is used to distribute the different types of income into the proper buckets for tax preparation. It's because the TYPE of income is indeterminate until the K-1 is issued that these entries are pulled in from Schwab by Quicken with the ADDED type label. Indeed, these ADDED entries are all RETURNS earned by the LLC and they get valued at $1 by the LLC and show up as SHARES ADDED. I suppose one COULD manually modify the entries that are pulled in automatically by Quicken and separate them into a CASH added transaction that would then be paired with a Re-Investment of shares. (This would keep the CASH balance correct.) This would presumably allow the Rate of Return computation to interpret the inputs properly. But it would also contaminate the tax-label of the entries, since the cash TYPE depends on information that comes later in the K-1.

It's too much for me to expect Quicken to do this since they pull in the transactions based on the coding of the brokerage (Schwab in this case).

So now that I understand all this, I can't blame Quicken. I hope you found it interesting and I appreciate your counsel and time spent.

Chris_QPW

Even a new user to this forum can drag and drop an image in the comment box, and it will be attached.

ggold91364

Thank you, Chris for that valuable input. I was going to try it, but I'd have had to make several screen shots and I think the text reply did the job. Nonetheless, I will remember your hint.

Gene

Jim_Harman

Quicken records the transactions the brokerage sends it.

Added transactions are different from Div or Int. They are for when you receive a security as a gift or it is transferred from another account. By design, they do not affect Quicken's performance calculations.

Quicken has a tax line items for K-1 income. You could set up a Category that uses an appropriate one and enter MiscInc transactions that use that category. 

ggold91364

Thank you, Jim. I was not aware that there’s a Quicken tax line item for K-1 income. I am aware of (and use) the tax line item categories for “normal” categories.

I’m not quite sure how to look for the K-1 related items. Can you be more specific by describing with an example? Let me be more clear in my question, and assume I know how to set up new categories, subcategories and invoke the tax line items.

Realize, please, that when a given “added” transaction of income comes into these investments, I have no idea what tax category it is. I think you’re suggesting I give it “misc inc” as the TRANSACTION type, and I know how to do that. It’s your comment “Quicken has tax line item for K-1 income” I’m absolutely new to.

By the way, I’m not at all concerned about preserving the tax-related categories (which I won’t ever know for each individual transaction because the K-1 supplies only total $ in each tax related category). Here the focus is on setting up a method that would permit Quicken to do the performance calculation for these “added” transactions. I use the K-1 and TurboTax to take care of the tax issues. I don’t import data from Quicken into TurboTax.

I think you’re suggesting I manually change the “added” transaction type for each of these transactions. But I know if I don’t do that correctly it will alter the cash balance because the “added” type avoids that.

Jim_Harman

1. Create a new Income Category called LLP Income or whatever you want to call it. 2. While creating the category, click on the Tax tab and scroll down through the available tax line items until you get to the K1 section. Pick the most appropriate K1 line item. Since you don't know what it will eventually be, you might pick Other. This will determine where this income appears in Quicken's tax reports.

Now we need to know what is happening with this income in real life. Is it distributed as cash and the cash used to buy shares in a money market fund? Is it reinvested in the LLC? Knowing that, I can say what transactions you should enter.

ggold91364

Thanks Jim. Presently all these "added shares" entries are having the effect of taking the cash and reinvesting it in the same entity, which maintains its $1 asset value. So, in the Portfolio screen if I expand the item, the list of Lots with dates of each dowloaded transaction show up. The Quote col shows $1 and Shares, MV, Cost Basis all have the same numerical entry. In the Transactions screen, the CASH column is unaffected by these entries, as we would expect.

I created a new LLP INCOME category per your suggestion. On the Details tab, I put a check in the box that affects performance calculations because the information there suggested to me that's the correct thing to do. I can remove that if need be. Then on the Tax Tab, after I invoked the option to make extra tax categories available, I did succeed in finding those K-1 options, which were certainly not otherwise evident. I chose the OTHER tab.

By using the ADDED SHARES "Type" these distributions are being treated as reinvested shares. But, as discussed previously, they are currently not being included in performance calculations.

I didn't want to "experiment" by next trying to invoke the new LLP, so I'm ready for your next hint.

q_lurker

I put a check in the box that affects performance calculations because the information there suggested to me that's the correct thing to do. 

I can understand your misunderstanding.  The description of the checkmark is seriously lacking.
"Cash investment transactions with these categories won't be excluded when calculating IRR and Growth of $10K."  Huh???  Double negative "won't be excluded" means will be included?  Included / excluded from what?  We've asked for and offered clearer language but nothing has changed.  

The checkbox is generally intended for expenses rather than income.  Under normal circumstances, expenses paid out of the security or account are considered returns.  Prime example are fees paid for asset management.  If the category used for those fees is unchecked for that box, having the account paying that fee is no different than having the account buy you a new toy.  It is discretionary cash to you for your to do whatever you want -- buy a boat, buy groceries, go on a trip, buy financial advice.  It is a return from your overall investment portfolio or from that security and serves to increase your Average Annual Return (not sure off the top how it might impact ROI.)

Users asked for a different option - that became the checkbox.  Now if that box is checked for that category of expenses, payments out of the account using that category are NOT considered returns.  comparatively, returns are reduced.  Then the AAR becomes a 'net of fees' percentage.  

I have not experimented with how that checkbox on an income category would impact AAR numbers.  

But I don't think you want that box checked.

With a backed up file, I would not hesitate to change the Added Shares to a comparable MiscInc transaction using your new LLP Income category, and then buying the new shares at your fixed $1/share rate.

I think that will give you much better info.