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Incorrect Cost Basis Calculation

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Mark

18 Jul, 2009 04:18 AM

MoneyDance is treating Dividend Reinvestments like purchases, and increasing the cost basis of the security by the amount of each reinvestment. This throws off return.

Example:
1/1/2000: Buy Vanguard Total Bond Market Fund (VBMFX): 1,000 shares at 10.00.
Cost Basis: 10,000 (correct!) 6/1/2000: Reinvest Dividend 5 shares @ 10.00 (total dividend: $50) Cost Basis: 10,050 (WRONG! Should still be 10,000)

If current price of VBMFX is still 10.00, MoneyDance reports %Change = 0% (WRONG!) when correct %Change is actually 0.5% (10,050 - 10,000 = 50 / 10,000 = .005 = 0.5%).

1. 1 Posted by Ronald on 18 Jul, 2009 12:00 PM

   

   I have this same problem myself and wonder if that is intended by the developers.

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2. 2 Posted by -Kevin N. on 18 Jul, 2009 12:27 PM

   

   Hi Mark, Hi Ronald
   The way I understand it, is that if you buy another $50 worth of (VBMFX) whether through reinvesting a dividend, using money from your wallet or money you stole from your mother's cookie jar, you're still spending money to buy the shares and therefore uping your cost basis. Think of it this way, if Vanguard paid you the $50 dividend in cash and you turned around and bought $50 worth of (VBMFX) wouldn't you expect your basis to increase by $50? I am by no means an exper but I think it's correct for MD to report 0% price change if the NAV is still $10 a share. -Kevin N.

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3. 3 Posted by mike on 18 Jul, 2009 04:25 PM

   

   Kevin is correct. If you use dividend re-investment, it's just and automated way of purchasing a security at the time of the dividend. It would be the same as if you paid the price of the security out of cash. The dividend represents income that you earn. What you do with it is a separate issue.

   If this is a taxable account (non-IRA), you will be taxed as if it were income off Schedule D. If it's an IRA or 401(k), it's non-taxable, but still income.

   Mike

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4. 4 Posted by Douglas on 05 Sep, 2009 01:56 AM

   

   This may be true for tax purposes, but it is still a desirable feature, perhaps in the form of the return on investment or rate or return reports for which trac bugs exist. This is my single most desired feature in MoneyDance at present.

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5. 5 Posted by Ben Spencer on 16 Sep, 2009 09:36 PM

   

   Hi

   Reading the wikipedia article on dividend reinvestment plans it seems that a dividend reinvestment will increase your cost basis. Here is the link:

   http://en.wikipedia.org/wiki/Dividend_reinvestment_plan

   "A downside of using DRIPs is that the investor must keep track of cost basis for many small purchases of stock, and maintain records of these purchases"

   If a div reinvest didn't change the cost basis you wouldn't have to keep track of the cost of the many small purchases. I am of the belief that Moneydance is calculating the cost basis for div reinvests correctly. However if you can point me ot a reputable source that demonstrates otherwise I would be happy to take a look at it.

   Sincerely

   Ben Spencer

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6. 6 Posted by Douglas Stebila on 16 Sep, 2009 09:47 PM

   

   Ben, I'm not questioning that Moneydance isn't calculating cost basis correctly. Rather, I'm pointing out that there is other information people would like. Take a look at the "Reinvestment when capital is at risk: rate of return and yield" section on the Wikipedia article on Rate of return.

   http://en.wikipedia.org/wiki/Rate_of_return#Reinvestment_when_capit...

   You can see in the worked example how the cost basis relates to the capital gains to derive a rate of return.

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7. 7 Posted by Angie Rauscher on 17 Sep, 2009 01:33 AM

   

   Our wiki is integrated with our feature request and bug reporting system. Please feel free to use these systems to help improve Moneydance by bringing bugs to our attention and requesting new features. It appears there is already a Return on Investment feature request ticket. We now also have voting on all existing tickets, which helps us determine which requests have the most demand.

   Please let me know if I can be of further assistance, and thank you for your interest in Moneydance.

   Angie Rauscher
   Moneydance Support

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8. Angie Rauscher closed this discussion on 28 Oct, 2009 05:42 PM.