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Return of Capital

TMHrows

I have invested in GNMA bonds since 2010. Up through June 2022, quicken would correctly record a ROC, reduce the cost basis, and update the price (current price times ROC factor) thereby accurately reflecting the market value of my portfolio. Since that time, quicken fails to reduce the basis by the ROC, and has been inconsistent about reporting the adjusted price per share. For two months it picked up the ROC factor, and after that the price unadjusted by the factor. WTF??

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TMHrows

Quicken's solution calls for me to manually calculate the adjusted price and edit the price history. That is literally over 100 transactions. Whose brilliant idea was this??

Tom Young

I don't know whose brilliant idea it was, but I do know that the pricing you receive - correct or otherwise - comes through the broker.

Many posts have lamented that there's no "factor" field in Quicken, but despite that some people receive correct quotes, (maybe from Fidelity? I don't remember), and others don't don't, so "correct" or otherwise does seem to be broker-dependent.

Of course the other factor here is the downloading method. Back when everything came down to Quicken using Direct Connect - a broker-created source - Quicken couldn't do otherwise than accept whatever the broker created. Now we have Express Web Connect and Express Web Connect+ and it's not so clear (to me at least) how, exactly, downloads are created. Obviously there's some conversation between the Financial Institution (FI) and the aggregator (Intuit) about what is needed and what is wanted, but we (again, me) don't really know if one side is really understanding, exactly, the other side.

So the problem might come down to: did you change broker and/or did you change downloading methods sometime in June 2022?

TMHrows

no, same broker same download. My brokerage statements have always shown interest payments and principal payments (i.e. return of capital) separately. before June 2022, quicken was able to correctly enter a principal payment as a return of capital, and that would automatically reduce my cost basis. It was able to accurately reflect the current value of the bond, though I don't know whether the program entered the value from the brokerage statement and then calculated the effective price/share by dividing the brokerage statement value by the number of shares (which never change over the holding period), or calculated the effective price/share via the following formula and then multiplied that by the number of shares.

ROC factor = Reduced cost basis/original cost basis

Effective price/Share - ROC factor X quoted price

Current Value = effective price per share X number of shares

What I do know is that Quicken says the ONLY way to record current value (there is no way to directly enter that) is to manually adjust the Quicken downloaded quoted price by the ROC factor from the brokerage statement. The fact is, quicken has download all the data it needs to do that calculation internally and automatically enter the effective price per share. As i have said, between 2010 and june 2022, I didn't have to manually adjust anything.

Tom Young

To the best of my knowledge and belief Quicken doesn't calculate prices, it simply accepts them, with maybe an exception for a Buy where Quicken knows both the quantity and the total price. But I really don't know.

"Since that time, quicken fails to reduce the basis by the ROC,"

I might have misunderstood what that statement is saying. I think that I saw that as "Quicken is no longer downloading return of capital information, it's simply reporting all the cash in one lump", and maybe that's wrong. Are you actually saying that the return of capital amount IS downloaded, but Quicken isn't changing the cost of the security?

Who is the broker? And what is the downloading method?

TMHrows

THe broker is Janney Montgomery Scott, direct connect — but that is irrelevant. The issue is that quicken changed the program. According to Chat GPT

Many users have specifically highlighted issues with the tracking of GNMA (Government National Mortgage Association) bonds in Quicken following the changes. Users reported difficulties in accurately monitoring these investments due to several factors:

Issues with GNMA Bond Tracking

Data Import Problems: Users experienced challenges in importing accurate data related to GNMA bonds from brokerage accounts, leading to discrepancies in performance reporting.
Limited Detail: The level of detail available for GNMA bonds was reportedly reduced, making it harder for investors to assess interest payments and principal repayments accurately.
Accounting for Prepayments: GNMA securities can have complex cash flows due to prepayments. Many users found that Quicken's handling of these features was insufficient after the software's updates.
Performance Analytics: The tools for analyzing the performance of GNMA bonds became less robust, limiting the ability to track overall investment effectiveness.

These tracking issues particularly concern investors who depend on precise data for managing their fixed-income portfolios, especially in a fluctuating market. Quicken has been made aware of these issues and continues to work on enhancements based on user feedback.

You're correct in your understanding of how current market value of a holding is calucated, and your deduction summarizes the calculation effectively. Here's a clear breakdown of your points:

Calculation Breakdown

Current Average Price: The brokerage lists the current market price per share for the bond. This price reflects various factors, such as:
- Market demand
- Current interest rates
- The bond's coupon rate
- Time remaining until maturity
Principal Factor: The factor you mentioned is indeed calculated as: Factor=Initial Principal/Remaining Principal. This factor shows the proportion of the remaining principal relative to the initial investment and is crucial for adjusting the market price to fit your specific holding.
Adjustments for Current Effective Price: The current effective price for your holding is calculated as: Effective Price=Current Average Price×Factor This adjustment recognizes that while the amount of principal has been reduced by returned principal, the number of shares remains the same to avoid a taxable event.
Total Value Calculation: Finally, the total value of your holding is calculated by multiplying the effective price by the number of shares you hold: Total Value=Effective Price×Number of Shares

Conclusion

Your summary captures how adjustments are made, preserving the number of shares while reflecting changes in value through price adjustments. This method is practical and avoids triggering a taxable event, ensuring that investors can see a current valuation of their holdings based on market factors without complicating the ownership structure.