Mutual Funds Cap Gains or Dividend Reinvestment

[Boris Goldowsky]

On Thu, 2004-09-02 at 08:01 -0400, Aaron Gaudio wrote: 
> On Wed, 2004-09-01 at 22:09 -0400, Derek Atkins wrote:
> > I have no idea...  I've never played with the report.  Have you
> > checked the Report Options?  It's quite possible the report doesn't
> > report ROI.  Is there a label for ROI on the report?
> > 
> > -derek
> 
> I'm using gnucash 1.8.9 and the report has a "Total Return" column.
> Technically, I think what we have been talking about is "Total
> Return" (total return would be the appreciation plus dividend/capital
> gains income divided by the cost, but the report does not appear to take
> into consideration dividend/capital gains income). I believe "ROI" would
> really be just the dividend/capital gains cashflow divided by the cost. 

There is a patch at this URL which is intended to fix this problem:
  http://bugzilla.gnome.org/show_bug.cgi?id=143722
so in the next version of Gnucash, you should be able to have capital
gains and dividends included as part of the calculated total return.

However, in testing this patch I've found that it requires what seems to
me an unusual method of data entry in order to work.  I would love to
hear from others if this is the right thing to do (I would have a lot of
old data to convert to this new system if so, and I don't want to do
that if I've understood things wrong).

The Gnucash concepts guide at
http://www.gnucash.org/docs/v1.8/C/gnucash-guide/invest_dividends1.html
suggests entering dividends as transfers from an income account such as 
Income:Dividends:STOCKSYMBOL to a bank account (or wherever the dividend
actually goes).  For reinvested dividends, it suggests entering the
transfer from that Income account matched to a Buy in the stock account
(eg, Investments:Brokerage:STOCKSYMBOL).

However, this method of entry will not get the dividends included in the
advanced portfolio report as part of the total return.  To get them in
the report, you seem to have to enter cash dividends directly in the
stock's register (dispensing with the Income account altogether), as
transfers from the stock account itself with shares and price set to
zero (or blank):

NUM  ACCOUNT                            SHARES  PRICE   BUY  SELL
Div  Investments:Brokerage:STOCKSYMBOL       0      0     0  5.00
     Bank                                    0      0   5.00    0

And a dividend reinvested would be a transfer from the stock account
(share and price = 0) to a buy in the same stock account (with actual
share and price for the purchase):

NUM  ACCOUNT                            SHARES  PRICE   BUY  SELL
Div  Investments:Brokerage:STOCKSYMBOL       0      0     0  5.00
     Investments:Brokerage:STOCKSYMBOL     0.5  10.00     1     0

which results in two lines in the register attached to the same set of
splits - one for the dividend, and one for the reinvestment.

This method does seem to work as far as this report goes, and despite
the strange look of it (selling 0 shares at a price of 0 results in
$5?!) it doesn't raise any red flags with Gnucash's double-entry
enforcement.  But is it the Right Thing To Do?  Will it appear correctly
in income/expense and tax reports?  And if so, should the concepts guide
be updated on this point?

Bng
-- 
Boris Goldowsky <boris at alum.mit.edu>