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Posted by TomYoung on February 6, 2007, 1:40 pm
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> Yes, my main goal is to know how well the investment is peforming
> without having to enter the hundreds of individual transactions each
> cycle.
>
> I will try your approach in a "test" account with small numbers so I
> can better see how Quicken is handling the matter. I also want to
> track the other things taking place, like interest, dividends and
> management fees, just for the heck of it. Those items are needed
> for my income tax reporting, and I want to check those amounts
> that I get on 1099 forms against that which is in Quicken. Sounds
> like you are saying is to track those items in a spread sheet, which
> I can do.
>
> I had attempted to enter the hundreds of transactions for two cycles,
> but found the effort way too exhausting, and I usually had a few typos
> to track down, but the bottom line was that it was too much effort for
> the benefit Quicken provided. The summary approach seems to be the
> best alternative.
Actually, there's a certain amount of funkyness to Quicken's
calculation of IRR so my suggestion would be to track income and
expense in Quicken (numbers entered at a summary level) and to do the
IRR calculation on a spreadsheet. For example:
1) On 1/1/2007 I transferred $1,000 from checking to my new ($0
opening balance) "managed money" account.
2) On 1/1/2007 I purchased 1 share of fake company at $1,000 a share.
3) On 6/30/2007 the money manager sent me $100.
4) On 12/31/2007 the money manager told me the account was worth
$1,200. Accordingly, I adjusted the quote on fake company to
$1,300.
Blend this all together and run an Investment Performance report from
1/2/2007 to 1/1/2008 (Quicken insists on having a non-zero opening
balance, hence the 1/2/2007 date) and you get a 31.49% return, which
is correct.
Now, wedge in a new step 4
4) On 9/30/2007 money manager took $50 for his fee
and change the old step 4 to
5) On 12/31/2007 the money manager told me the account was worth
$1,200. Accordingly, I adjusted the quote on fake company to $1,350.
>From your standpoint there's no change between the two scenarios: You
put in $1,000 at the beginning of the year, got $100 at the middle of
the year and have a portfolio valued at $1,200 at the end of the
year. Accordingly, the returns calculated under either scenario
should be the same, right?
Unfortunately, Quicken doesn't see it that way and includes the cash
flow to the money manager as a cash flow to you, upping the return to
37.16%.
There's folks here who have studied Quicken's IRR more closely than I
have (as a math major and finance guy I've just always done the
calculations myself on a spreadsheet) and they might suggest some way
of finessing this problem. I've always used Quicken as a pure
accounting program and done my "performance" calculatons outside of
the program.
Tom Young
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