entering downloaded reinvestment transactions

Pacoinconn

I recently switched a few investment transactions from Vanguard to Schwab. I've noted that some reinvestment transactions in the Schwab account occur with two transactions: one is the dividend (shown as a cash dividend associated with the security/ETF/mutual fund) and the second is a purchase. Others are downloaded as one transaction (reinvestment)…the same way Vanguard transactions are downloaded.

My questions:

1. Should I manually convert the two transactions to a single reinvestment transaction to minimize the number of transactions in the Quicken file (goes back to 1992)?
2. From an accounting perspective, is there a difference between the treatment of the two different approaches? I believe the answer is no however it would be helpful for me to have that confirmed.

Thanks in advance for the assistance.

Jim_Harman

Generally Div and buy is the same as Reinvest, especially if they are recorded on the same day.

But how you enter the transactions may affect some of Quicken's performance calculations.

For me, the key performance measure is the Avg. Annual Return (%), as seen it those columns in the Portfolio views and the Investment Performance Report. If the transactions are entered on the same day, this is exactly the same as a Reinvest.

Jim_Harman

Generally Div and buy is the same as Reinvest, especially if they are recorded on the same day.

But how you enter the transactions may affect some of Quicken's performance calculations.

For me, the key performance measure is the Avg. Annual Return (%), as seen it those columns in the Portfolio views and the Investment Performance Report. If the transactions are entered on the same day, this is exactly the same as a Reinvest.

Pacoinconn

@Jim_Harman Thx for the quick reply and confirming that there is no difference from an accounting perspective. And thx for going the extra step and pointing out the impact on performance calculations in Quicken. Will simply make sure the dates are the same day so that the calculations are correct.

Rocket J Squirrel

There is a difference. The Buy in the Div+Buy pair increases the Quicken quantity "Amount Invested". This affects the Return quantities QWin displays.

A ReinvDiv does not increase Amount Invested, possibly leading to more accurate Return displays.

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

https://help.quicken.com/display/WIN/Tell%2Bme%2Babout%2Bthe%2BPortfolio%2Bcolumn%2Bheadings

mshiggins

Clearly, users can choose to treat these "reinvestment" transactions however they wish. But I have long wondered whether it's legitimate to treat many so-called reinvestment transactions as if they were really "reinvestment" transactions.


Scenario 1: Suppose that in the real-world you get a dividend from a security and you have given your financial institution no instructions about what to do with that dividend.

Then immediately after learning that you have received that dividend, you go online and initiate a Buy transaction, for the exact amount of that divided, to buy more shares of the same security that issued the dividend. And suppose that results in your buy transaction occurring 1 (or more) days after your dividend transaction.

Would you treat that dividend/buy pair as a "reinvested" dividend? Would your decision change depending on the number of days between the dividend and the buy?


Scenario 2: Suppose a second scenario, the same as scenario 1, with the exception that you have given your financial institution instructions to automatically "reinvest" every dividend you get from that security. So in scenario 2, the only change is that the financial institution automatically uses the entire amount of that dividend to purchase more shares of the security that issued the dividend - but the Buy transaction still occurs 1 (or more) days after the dividend transaction.

In what way should the second scenario be treated in Quicken as a "reinvestment" transaction, if the first scenario was just a dividend and a buy?


It's my belief that unless the dividend/buy transactions occur on the same date, there can be no genuine "reinvestment" transaction. Indeed, if the dividend and buy dates are different in the real-world, the dividend might increase income in one reporting-period, while the buy might occur in a later reporting-period (creating a different starting date than the dividend date, for the short-term/long-term holding period).

I believe that the only true reinvestment transaction occurs when the issuer of a mutual fund automatically credits an owner of shares of that mutual fund with an increase in shares owned equal to the number of shares that a dividend would have purchased (A Schwab mutual fund held at Schwab, or a Vanguard mutual fund held at Vanguard, would be examples of a fund held by the issuer of the fund). No actual dividend is ever issued to the owner, and the number of shares owned is always increased on the same date as the dividend.

In my opinion, when a financial institution downloads a dividend transaction and a buy transaction for the same security, that can't be a true "reinvestment" transaction. To my knowledge, no mutual fund has ever done that for a reinvestment transaction held with the mutual fund issuer. 

In fact, I have had mutual funds held at a different financial institution than the issuer of the fund (a Vanguard mutual fund held at Schwab, for example), and have gotten two separate transactions - a dividend and a buy - recorded (in the real-world and downloaded to Quicken). The fund issuer had instructions to automatically reinvest the dividends, but since the funds were held at a different financial institution, the issuer could not do the "buy" - so they issued the dividend then transferred it to the financial institution currently holding the fund, and the financial institution currently holding the fund recorded both the dividend and the buy and downloaded those two transactions to Quicken.

I think the notion of "reinvestment" transactions for securities such as stocks, was never a genuine "reinvestment": it was just a marketing tool to provide customers with a much simpler, and cheaper, way to use their dividends to buy more shares of the security issuing the dividend.

That is my personal interpretation: I'd be glad to hear other opinions.

-JP

Pacoinconn

@mshiggins Interesting scenarios. From my perspective, I'm trying to make sure that whatever approach I use tracks doesn't affect how Quicken calculates performance as @Rocket J Squirrel indicates could happen if the dividend and buy dates are entered a few days apart. While in reality that may have happened, I would want to make sure that the price and date for the buy are accurate (so the transaction's price per share remains accurate for that particular date) and am willing to adjust the date of the dividend….if I don't "convert" the two separate transactions into one "reinvestment" transaction.

At this point I'm leaning towards doing the conversion and making sure I use the date of the buy for the reinvestment. This raises a question for which I think I know the answer: is it possible to set up an automatic "conversion" similar to the renaming rules? I think the answer is "No"….which means I'll have to manually convert when Schwab sends over two transactions.