Mutual Funds Cap Gains or Dividend Reinvestment

[Aaron Gaudio]

On Wed, 2004-09-01 at 12:24 +0000, rwshep2000.3129421 at bloglines.com
wrote:
> Aaron,
> 
> Yes, I agree with your formula.  From the perspective of, "how much
> did I make from my original investment," however, you need to exclude the
> reinvested shares from your basis cost (cash in).

You definately do *not* want to exclude the reinvested shares from your
cost, because you are already including them in your return, and they
will also show up in your current value. To exclude them from your cost
would be to count them twice.

Example:

I own 10 shares of XYZF fund that I bought at $90 a share. Each share is
worth $100 and the fund pays out a dividend of 10 cents a share.

At the moment the dividend is paid out (and potentially reinvested), my
ROI should be the same regardless of if the dividend is reinvested or
not:

If the dividend is not reinvested, then my ROI is 

        (10*$100+10*$0.10)/(10*$90) - 1 = 11%
           |       |          |_ bought 10 shares @ $90
           |       |
           |       |_ rec'd $0.10/share dividend
           |
           |_ existing 10 shares @ $100

If the dividend is reinvested (.01 shares), then my ROI is
	(10.01*$100+10*$0.10)/(10*$90+0.01*$100) - 1 = 11%
             |          |        |        |_ reinv .01 shares @ $100
             |          |        |
             |          |        |_ bought 10 shares @ $90
             |          |
             |          |_ rec'd $0.10/share dividend
             |
             |_ existing 10 shares plus reinv .01 share, @ $100

This is because whenever you reinvest, you must treat it as if the fund
simply paid you cash and you manually purchased the additional shares
(with the exception that any sales fees are waived). In a manual
purchase, you would include the cost of the shares in the ROI
calculation, and therefore you must do so for reinvestment as well.

> 
> In any case, am I correct
> in my belief that there is no existing report that will do what you describe?
>  Unless I am doing something wrong, the Advanced Portfolio shows only appreciation
> of share price.

I believe you are correct, but I haven't really used the Advanced
Portfolio in a while.