Investment Performance Report IRR error

Mary Ann Edson-Plumb

When I run the Investment Performance Report, I get an error message that says that some IRR calculations are incomplete because the IRR is either too high or negative. It doesn't give me any idea which investing accounts are involved. How do I find the problem and fix it?

After I get that error, it gives me the setup page, I select all the investment accounts, and it appears to give me a valid report, but how can I be sure given the error message?

I'm on Quicken Premier release R53.16 on Windows.

Boatnmaniac

In the Investment Performance Report select "Security" from the Subtotal drop-down. Look for the security(ies) that show a "N/A" in the Avg. Annual Return column. Those are the securities that are causing that error message.

We get that error message with securities that have been held for shorter periods of time (<1 year) and the return calculation exceeds 10,000% or less than -99.9%. Short-term holdings often cannot be calculated to provide a good annual return number because the holding time period is too short. As the holding time increases the calculations become more accurate. For most securities (that are not highly speculative), after 6 months have passed the average annual return calculations are fairly accurate and after 12 months they are very accurate.

The key thing to remember is that what is being calculated is the average ANNUAL return. So, the holding period can be very consequential in that calculation. For example:

• A $1000 initial investment that has a value of $1100 after 12 months would have a calculated average annual return of 10%. But if that same $1000 initial investment has a value of $1100 after 1 week it would have a calculated average annual return of 14,295%.
• Conversely, if that initial investment of $1000 has a value of $900 after 12 months, it would have an average annual return of -10%. But if the value was $900 after just 1 week the average annual return would be -99.59%

In both of these examples the actual return (not annual return) is either $100 or -$100….10% or -10%. But the holding periods are very different so the average annual calculated percentage returns are very different from each other.

Rest assured that this is about percentage returns calculations, not about the actual returns. When the average annual returns exceed Quicken's calculation capabilities is when we get that error message. There are several online calculators and they, too, will return error messages once the calculated percentages exceed their parameters.

For most people who do not do a lot of trading with a high percentage turnover in their portfolio, these percentage returns errors for particular securities generally have very little (almost negligible) impact on the average annual returns of the entire account or the entire portfolio. So, if I were you I wouldn't be too concerned about getting that error message unless you find that the security in question is one that you have held for a long period of time (i.e., more than 6-12 months) which should then raise all kinds of flags.

Does this make sense?