Investing 102

[GregWeld]

BTW --- If you have a Schwab account -- there's a couple pages in there that will calculate all of this stuff for you... Look under Portfolio Performance and then find the RETURNS tab --- and it will show you various timeframes...


The account I use here (I have FOUR Schwab accounts - So it's easiest to just pick one for consistent use here) for my examples -- is UP Year to date - 22.47%... and it's ONE Year performance (which is just one year back from todays date) is UP 18.75%


Any way you want to look at it -- those numbers (and yours) beats the current bank CD rate - BOND return rate etc...

[SSLance]

I like to look at my numbers too, it's not work for me, it's more like therapy.

One trap I have caught myself doing in Quicken (where I keep all of my investment records) when a dividend is reinvested, is shows as an add on to the cost basis...which is technically correct, but if you are just looking at a portfolio value report with a cost basis and a market value column, both can be going up at the same rate and it looks like you are just spinning your wheels.

You have to run a return on investment report and customize it to show the actual return for the periods and accounts or securities you want to review. This will calculate the ROI on not only the income reinvested but also any additions or subtractions you have made to the account during the set period.

Once you get the hang of running the specific reports, and find the ones you like you can save them and click on them to review any time you want.

[WSSix]

That's basically what I've done with my own simple calculations, Lance. I only have Excel or Open Office's version of excel really so I sit down and crunch the numbers periodically so I can see where my gains are. A few of my stocks have good Dividend Gains but the Capital Gains are not so great bringing everything into the red. I like to know that distinction. I also have one stock that I cannot reinvest the dividend in and I have to treat it differently than the rest when calculating or else it looks like I'm losing money on it when in fact I'm making a small return. Yesterday, I went ahead and set up a spreadsheet book to track everything. It's simple but it works for me.

If I didn't already have the Fidelity and Vanguard accounts, I think I would go with Schwab simply for the tools you've mentioned, Greg. Maybe those same tools are available to me already but I'm not finding them easily. Fidelity's website does a much better job of breaking things down and displaying them than Vanguard's in my opinion. Of course, I am amateur so maybe I'm just not understanding the terms in which the info is displayed.

[SSLance]

I have been using Quicken for years, for both my personal bookkeeping and to track my investment accounts. when I started using it it was still in DOS format if that tells you anything. It really is pretty cheap to buy, super easy to setup and use and works very well.

I'd bet if you bought a copy of Quicken Home and Business, or maybe even just Quicken Premier...in a week you'd kick yourself for not doing it much earlier. It automatically downloads all of your transactions and holdings from your financial institutions so all you have to do is review and accept them and you are done. Then any data you want to look at or see is at your fingertips whenever you want.

If anyone wants to try Quicken out, I know the program inside and out and would be happy to help anyone with initial setup or use of the program.

[GregWeld]

Here's for everyone that wants to figure this stuff out.


ROI = (gain from investment - minus - cost of investment) DIVIDED BY - Cost of investment




Here's a page --- from a website you should all get familiar with.... that will help you with ROI


http://www.investopedia.com/articles...lating-roi.asp

[GregWeld]

'Annualized Total Return'

A mutual fund could earn returns varying from 3 to 5% each year and have an annualized total return of 3.995%. On the other hand, a fund could also be much more volatile, losing 3% in one year, earning 12% in another and have an annualized total return of 4.23%. The difference is the first fund would offer steady returns while the second would offer widely fluctuating returns.

Annualized Return = [(1+R1)*(1+R2)...*(1+Rn)] ^ (1/n)

Where R = annual return for a given year

[GregWeld]

The return on any investment, measured over a given period of time, is simply the sum of its capital appreciation and any income generated divided by the original amount of the investment, which is expressed as a percentage. The term applied to this composite calculation is total return.

However, there is a difference in this simple concept as applied to stocks and mutual funds. Unfortunately, a great many mutual fund investors do not seem to have a clear understanding of a fund's total return. The relationships between a fund's net asset value (NAV), yield (income) and capital gains distributions can be confusing. For stock investors, calculating and understanding their total return is relatively easy. By comparing how total return is derived for both stocks and mutual funds, you'll be able to better understand how this measure works for mutual funds.

Stock Total Return
We begin our illustration with a share of XYZ Company that is bought for $30 at the beginning of the year. During the year, its price fluctuates, but it closes the year at $33, which represents a nice percentage return on the investment of 10% ($3/$30).

But, things get even better because XYZ paid an annual dividend of $1 per share. This dividend equals an additional 3.3% return ($1/$30). Adding together the capital appreciation (price increase) of 10% and the income return (dividend) of 3.3% gives us a one-year total return for XYZ Company stock of 13.3%. However, remember that unless you sell XYZ stock, the price appreciation gain remains in the stock price, or is unrealized. (For more on this concept, see What are unrealized gains and losses?)

Fund Total Return
With mutual funds, explaining total return is a bit more complicated. We begin with a share of the ABC Fund, which is purchased at its net asset value (price) of $16 per share. A fund's NAV is derived by dividing the value of its portfolio securities (the fund's assets), less any accrued fees and expenses (the fund's liabilities), by the number of fund shares outstanding.
Here's an illustration of the computation of net asset value for the ABC Fund:

The fund's cash and cash equivalents = $200,000
The fund's stock holdings at market prices:
10,000 shares of Company X @ $50 = $500,000
20,000 shares of Company Y @ $30 = $600,000
50,000 shares of Company Z @ $8 = $400,000

Total market value of stock holdings = $1,500,000

The fund's total assets = $1,700,000
Less the fund's liabilities = $100,000
The fund's tolal net assets = $1,600,000

The fund's total shares outstanding: 100,000

The fund's NAV: $16 ($1,600,000/100,000)




Remember that mutual funds are priced once a day, at the end of the day. Unlike stocks, where prices are moved by the supply and demand forces of the marketplace, fund prices are determined by the value of the underlying securities in the fund.

In our example, ABC is a hybrid stock/bond fund with a growth-income orientation. Apart from capital gains, its individual portfolio holdings will generate dividends and interest. By law, mutual funds must distribute these to the fund's shareholders. ABC's income distribution (its dividends to shareholders) for the year amounted to $1 per share. In addition, the fund's trading activities (the buying and selling of securities) generated a realized capital gain of $3 per share, which ABC also distributed to its shareholders.

The ABC Fund passed along all the earnings and capital appreciation it generated - $4 ($1 in dividend distributions and $3 in a capital gains distribution) to its shareholders for a total return of 25% ($4/$16). Here again, unlike a stock, by paying out all its capital gains, the ABC Fund's price, or NAV, remains at or close to $16. In this scenario, if a fund investor only focused on the movement in ABC's NAV, the results would not look very good. It's even possible for a fund's NAV to decline, but still have good income/capital gain distributions, which will be reflected in a positive total return.

Obviously, a fund's NAV does not tell the whole mutual fund performance story, but its total return does. It captures a fund's changes in NAV, its income distribution and capital gains distribution, which, as a whole, are the true test of fund's return on investment.

[GregWeld]

There's no GOOD Quicken for MAC users.... particularly if you're up to date on the latest OS (Mavericks).

[SSLance]

Originally Posted by GregWeld

There's no GOOD Quicken for MAC users.... particularly if you're up to date on the latest OS (Mavericks).

Well, not sure what to say about that...

Don't most Apple users setup a Windows partition or something like that so they can run the rest of the good software available out there?

[GregWeld]

Originally Posted by SSLance

Well, not sure what to say about that...

Don't most Apple users setup a Windows partition or something like that so they can run the rest of the good software available out there?

My wife - having spent 19 years as a Director at Microsoft (starting in 1984) - won't let me run any of their stuff.