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Investment Performance report Investments, Returns, and Avg. Annual Return question

PerryB

The Investment Performance report columns include: Investments, Returns, and Avg. Annual Return.

If the Show detail button is clicked it shows the transactions included.

“Investments” are mostly funds added but can include Spin-offs, Bank Interest or unusual income. Why does quicken consider Spin-offs, Bank Interest or unusual income as Investments?

“Returns” are mostly funds removed from the account and ending market value, but also includes things like advisor fees and Foreign tax paid. Why does quicken consider these as “Returns”

How do these affect the Avg. Annual Return calculation? Essentially, how are they classified for the return calculation?

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Jim_Harman

Those are good questions.

Anything that is included in the Returns column will be included in, i.e. add to the calculated Avg. Annual Return calculation. Quicken is treating it s money returned to you.

You can control which transactions are included in Returns by checking or un-checking the "Affects investment performance" box for the Category associated with the transaction. If you want advisor fees to show as a drag on performance, you should record them as a MiscExp and check the box on the Category you use for those fees.

PerryB

HI Jim,

"You can control which transactions are included in Returns by checking or un-checking the "Affects investment performance" box for the Category associated with the transaction." I'm not finding where he "Affects investment performance" box for the Category is. could you provide some more guidance?

Jim_Harman

Go to Tools > Category List, right click on the Category, and pick Edit.

The caption and help text are confusing, but checking the box shown will prevent any transactions with that Category from being counted as Returns in the IRR calculation. If the report is subtotaled by Account, the account level performance will be reduced accordingly.

On the report's Securities tab, make sure "No security (includes cash)" is checked.

Jim_Harman

More notes on the Investment Performance Report subtotaled by Account:

You will only see transactions that move cash or securities into or out of the account
With spin-offs, etc. you will see securities removed and then added on the same day. If the dollar amount is the same, it will have no effect on the performance.
You will not see dividends and other distributions that stay in the account. Their effect is included in the ending value.

If you subtotal the report by Security, you will see:

Dividends paid in cash will show as Returns. If the cash was used to buy a money market sweep fund, you will see a corresponding Investment for the same amount.
Dividends entered as Reinvest will not show, but their effect is included in the ending value.
Reinvested dividends entered as Div and Buy will show as 2 transactions on the same day and the result will be the same as a Reinvest..

PerryB

Jim,

I found the Edit Category Dialog and "Affects investment performance" check box.

It looks to me like all the Categories in the Category list are for banking transactions.

The investment transactions do not have a Category column in their listing, instead they have an Action column.

q_lurker

My perspective on that average annual return calculation:

Through the specification for the report - primarily included securities, accounts, and time frame - the user is defining a universe of investments. This might be the user’s entire collection of investments, or a subset, like retirement accounts, mutual funds, or securities that start with A - whatever the user specifies. Maybe cash in the investment accounts is included, maybe not.

Any additions increasing the size of that universe show up in the investment column. Typically, those would be cash from outside the account(s) or Shares Added.

Anything taken out of the universe that reduces it size appears in the return column. If the universe was one security, then dividends paid in cash would be in the return column since cash would be outside the defined universe. A reinvested dividend would not show in the return column.

The initial size of the universe is shown as the beginning market value; the end market value is the final size for the defined time frame. the effect of events that change the size without coming from or going to the outside are reflected in the overall change from beginning to end.

If a spin-off is entered with Remove Shares and Add Shares, it may be reflected in both columns, depending on the defined universe. The values associated with the removes and adds should equal each other for no real impact, but there is a flaw in that current implementation.

For common universes, any MiscExp, Withdrawal, or similar cash-out transaction would be removing value from the universe - a return. In that regard, taking money out to pay an adviser for their services is no different than taking it out to pay medical bills or buy a boat. What Jim pointed you to allows the user to create an exception to that standard. If the category you use for adviser fees or foreign taxes is checked for that exception, such expenses are not considered a a return from that universe.

Jim_Harman

There are special built-in Categories for investing income transactions. Their names begin with underscores, like _DivInc, _IntInc, _LT CapGnDst, and _RlzdGain. When entering investing transactions they are applied behind the scenes and do not show in the account's transaction list (register). To see the details of your investing transactions, you can view the Investing > Investment Transactions report. which has both Action and Category columns.

The investment Categories are listed in the Investing section of the Category list, but they are hidden by default. Check the Show hidden categories box at the bottom of the list to see them.

q_lurker

Following up on the last comment from @Jim_Harman it would be very unusual to check any of those hidden investment income categories to not be part of the average annual return calculation. I would not recommend doing that.

PerryB

Follow up: Frist thanks for the suggestions, they helped me to dig in and figure out at least part of what’s going on.

The Investment Performance report with Show Detail activated has columns for: Date, Account, Action, Description, Investments, Returns, Avg. Annual Return.

For a Schwab account the description for some transactions is Bank Int Xx…, with an amount in the Investments column and Cash in the Action column.

When I looked at these transactions in the Main Transaction ledger the Action is Deposit.

For some reason the Quicken Transaction Update (download from financial institution) is incorrectly assigning an Action of Deposit instead of Income.

If I delete one of these transaction from the transaction ledger and enter a new identical transaction but with Transaction type of Income, it shows as IntInc in the Transaction ledger and does not show in the Investments column of the Investment Performance Details.

These dollar amounts are small enough that they don’t materially affect the Avg. Annual Return. However, Quicken also assigns “Withdrawal” to Advisor Fee deductions “ADVISOR FEE DEDUCTED Investment Mgr Fee” rather than “Miscellaneous Expense”. This will cause the Avg. Annual Return to be overstated by one percent or so.

Also, another topic mentioned that the Transaction Edit function is broken. Editing the type (Action) from Withdrawal to Misc Expense does change it’s type internally someplace and change how it’s handled by the Performance Report. However, in the Transaction Ledger the Action remains labeled as “Withdrawal”. Thus, the repair needs to be done by adding a new transaction and deleting the old one.

It’s tedious to fix, but possible.