Recording investing expenses so they reduce the reported performance of investments

Sanfordrich

I’m trying to come up with a investment performance report for an investment newsletter I use. How can I include my expenses for the investment newsletter as part of the overall performance of the securities I am tracking? The expense is paid out of my checking account, and I am trying to design a way to include that expense as part of the overall performance of the securities I am tracking. I experimented with creating a dummy investment account with a dummy security I initially charged those expenses to before writing them off as an expense. Unfortunately, it doesn’t seem to be reflected accurately in my performance report. Any suggestions?

Jim_Harman

Good question. I will edit your title so it describes the issue.

The first thing I would do would be to go to Tools > Category List and click on New Category to create an Expense Category to track the cost of the newsletter and any other expenses you might want to charge against your investing performance. This would also be a good Category to use for other expenses like advisor or account fees. Let's call it Investing Expenses.

At the bottom of the New Category dialog, check the "Affects investment performance" box. This tells Quicken not to include these expenses in the Returns column in the Investment Performance Report or the Avg Annual Return columns of the Portfolio views, thus reducing the computed performance.

Then in your investing account, click on Enter Transactions and select Miscellaneous Expense. Enter the cost of the subscription and pick your Investing Expenses Category. This will reduce the cash in the investing account, as if you paid for the newsletter from that account.

Enter the payment for the newsletter in your checking account, using the investing account in [square brackets] as the Category. This will send the cash to the investing account, restoring the cash balance there.

[update] The last step above does not work correctly, because the transfer from the checking account is recorded as an Investment. I think as @NotACPA says above, the only way to record this correctly and have it reduce your investing performance is to pay for the newsletter directly from the investing account.

Sanfordrich

First post, and looks like I used my name instead of a subject description and not sure how to edit it. Oh well.

NotACPA

Is that checking account a "Linked Checking Account"? Where the cash transactions are actually downloaded into the brokerage account and automatically xfer'd to checking?

If not, I'm not aware of anyway to include banking transactions in an investment report.

[And I changed the title of your post. Hope the new title is satisfactory]

Jim_Harman

Good question. I will edit your title so it describes the issue.

The first thing I would do would be to go to Tools > Category List and click on New Category to create an Expense Category to track the cost of the newsletter and any other expenses you might want to charge against your investing performance. This would also be a good Category to use for other expenses like advisor or account fees. Let's call it Investing Expenses.

At the bottom of the New Category dialog, check the "Affects investment performance" box. This tells Quicken not to include these expenses in the Returns column in the Investment Performance Report or the Avg Annual Return columns of the Portfolio views, thus reducing the computed performance.

Then in your investing account, click on Enter Transactions and select Miscellaneous Expense. Enter the cost of the subscription and pick your Investing Expenses Category. This will reduce the cash in the investing account, as if you paid for the newsletter from that account.

Enter the payment for the newsletter in your checking account, using the investing account in [square brackets] as the Category. This will send the cash to the investing account, restoring the cash balance there.

[update] The last step above does not work correctly, because the transfer from the checking account is recorded as an Investment. I think as @NotACPA says above, the only way to record this correctly and have it reduce your investing performance is to pay for the newsletter directly from the investing account.

Sanfordrich

First of all, thank you (whichever one of you ended up doing it) for changing the subject line!

The expense in question is paid through a checking account outside of the investment account. It's interesting there is a check box to exclude an expense category from the investment performance report. I actually want to include it in a performance report, but it doesn't look like that is possible since it was done from a checking account outside of my investments. Anyway, thanks for responding to my question.

q_lurker

I think @Jim_Harman was at the right place before his follow-up edit. My thinking: if you are paying this from a checking account external to the performance, you need to consider that amount in the checking account part of the initial value or investment value in that brokerage account. Suppose you actually did transfer in the cost of newsletter and then pay that from the brokerage account as Jim laid out. That sounds very correct. By recording the check as a transfer, that is exactly what is taking place.

The ramification of that is that the OP will find that ignoring the newsletter cost produces the same performance as properly including it.

Sanfordrich

OK….After reviewing the quicken performance report with the dummy account and dummy security (to account for the investment advice expense), I now realize I don't have an issue. The approach I described in my original post did what I needed it to do. In other words, what I ended up doing was accounting for the investment advice expense as an investment in the report (by using the placeholder account and placeholder security) and that is what it is supposed to do. All investment expenses are treated as investments to calculate the return on that report. All is good. I was over thinking the issue.

Sanfordrich

Jim Harman and q.lurker: I essentially had originally done what Jim described but I used a placeholder so I wouldn't mess up the return of any specific security. That way the report shows a return for the individual securities and an overall return for my investments and expenses related to the investment advice. Your last comment didn't need to be made because the report is correct accounting for the expense as an investment. That is consistent with what q.lurker also pointed out. Thank you to all for your attention!

Sanfordrich

One final note: Except that the expense of the investment advice definitely impacts the overall return I am getting. Not in a big way, but I did want to see the impact and of course it shows up.

q_lurker

I experimented with creating a dummy investment account with a dummy security I initially charged those expenses to before writing them off as an expense.

what I ended up doing was accounting for the investment advice expense as an investment in the report (by using the placeholder account and placeholder security) 

I am not clear at all as to what your method is.

I am still visualizing that by paying for the newsletter outside of the investment account, both the asset used for the payment (the cash) and the payment are being omitted from the performance calculation. That was your initial starting point that you wanted to ‘correct’.

Adding both the asset (the cash) and the expense into the account for the performance calculation is appropriate. Once Jim’s point about the “Affects investment performance” box is applied, then the expense changes from being a return (better performance) to not being a return (lesser performance).

Simplistically:

1. initially - payment outside investment account
   1. 1000 grows to 1100 leads to return
   2. Effect of expense not included
2. both moved into account; box unchecked
   1. 1000 + 10 - 10 grows to 1100 leads to (same) return
3. check the box
   1. 1000 + 10 grows to 100 leads to (less) return

This approach seem intuitive to me while dummy securities do not.

Hope I didn’t confuse or mislead you before.