Question About Asset Allocation and Expected Return Regarding Bonds

Question

So, I've started playing around more with the Asset Allocation tab. And comparing it with portfolio visualizer categories. And I realized that most of the money market funds (SPAXX, FRGXX, etc) have a significant portion of their downloaded asset breakdown in bonds. This is incorrect, but it got me thinking about why Quicken might do this, because it has to be deliberate.

So I'm wondering, does Quicken do this because by assigning the domestic bonds category to these funds, it is accounting for expected returns it would not otherwise account for? Meaning in the internal calculation of the expected return, does leaving these funds as Cash or a custom category reduce the calculated expected return value?

recursor1 · Answer

https://community.quicken.com/discussion/comment/20510773#Comment_20510773

Yeah I actually think I was wrong about this…sorta. But I was looking at how other entities categorize things. Anyway, it's not important. @Jim_Harman 's idea of testing how allocation affects the expected return is a good idea, but also after messing with it a little, I can conclude that it is most likely a waste of time because he's right, it probably hasn't been updated in years and is inaccurate anyway. It's too bad you can't customize the expected return. But there are plenty of other tools for that elsewhere I suppose. It doesn't surprise me the Quicken team hasn't prioritized fixing tiny features like this one.

marcaronson408 · Answer

I also overrides the downloaded asset class to cash, for the same reasons @Jim_Harman does. Given the focus MM funds have on "not breaking the buck", it's the only option that made sense to me.

Marc

Jim_Harman · Answer

Quicken's asset allocation data is downloaded from the quote provider. Depending on the maturity of the fund's holdings, they may classify its allocation as partly cash and partly bonds.

Because the share price is fixed at $1.00, I override the downloaded asset classes for money market funds and set them to 100% Cash.

Quicken's Expected risk and Expected return calculations are a bit of a mystery, and I suspect they have not been updated in years. You could experiment in a test file by creating a security and setting its allocation to  100% of each asset class to see the expected risk and return assigned to each class. Then by adjusting the mix, you might be able to figure out how the calculation works or at least plot the results. For background, check Wikipedia for "Modern portfolio theory"