How does Quicken 2006 Calculate "Yield on Investment"?

"Arnie Goetchius" wrote

For answers to questions such as the one posed in your subject, I think the first place to look is in the "Glossary" on the menu bar on the Portfolio tab.

One problem with your question, as stated, is that Quicken has no such value as "Yield on Investment". There is "Yield on investment (%)" or "Yield on investment (Estimated"; but no "Yield on investment".

According to the Q2006 glossary:

"Yield on investment (%) equals: Income per share divided by current market price per share."

and the definition of "Yield on investment (estimated)" is

"... the estimated income (specified by you in the Edit Security dialog) divided by the dollar amount you invested (excluding reinvestments)."

The definitions appear to be exactly the same in Q2005.

Hi, Arnie.

I've never understood how Quicken calculates all these ratios. I gave up trying after the first year or two (early 1990's) and haven't paid any attention to them since.

But BOTH numbers you calculated are useful - for different purposes. Kind of like watching the weatherman on TV. Today's temperature and the prediction for tomorrow are both useful, but don't confuse them.

"Yield on Investment (%)" probably should be like your first calculation, showing how much you have gained on the cash you actually invested at some time in the past. (The number will need adjustment if you want an annual rate but you've held the investment for more or less than one year.) "Dividend Yield (%)" should show what kind of return you might expect if you bought those shares at today's price.

In other words, one calculation is a REPORT on what happened. The other is a PREDICTION of what might happen. But numbers are useful - for different purposes.

RC

I disagree with Stubby that "all those yield and return calculations are screwed up in Quicken".

In my experience, they are valid, and can be explained, as you've received from other posters (and, as usual, in Help).

Sorry I wasn't more precise. "Yield on investment (estimated)" is the one with which I'm having a problem. After going through the Edit Security dialog and setting the estimated income, Quicken gives me a figure of 2.94%. As stated above, the cost in December 05 was $23,450 and the yield is set to $1300 which gives a Yield on Investment (estimated) of 5.54% by my calculation. This is a substantial difference from the figure provided by Quicken.

"Arnie Goetchius" wrote-news.ops.worldnet.att.net...

Could it be that it's because you have not owned the security for a year. You did not say what the exact time period was that you owned the security when Quicken computed 2.94% yield, but that is a ball part number if the $1300 yearly estimate is pro-rated to approximately 6+ months.

Could be. I bought it on 12/13/2005. Maybe that's the answer.

I found the answer to this. I originally bought this stock for $20,750 on 11/05/03 and then sold it on 7/16/04. When I bought it again on

12/13/05, Quicken added the original $20,750 to the $23,450 for a total Investment cost of $44,300 and 1300/44300 = 2.94%.

To test this, I deleted the buy and sell transactions of 11/05/03 and

7/16/04. When I did that, I got the expected Yield on Investment (estimated) of 5.5%. Could this be a bug in the way Quicken makes the calculation?

"Arnie Goetchius" wrote

Well I assume that Quicken should adhere to its own rules for computations; question is, what are the rules for computing Yield on Investment (estimated).

Repeating the rule:

"... the estimated income (specified by you in the Edit Security dialog) divided by the dollar amount you invested (excluding reinvestments)."

The resulting computation would seem to be affected by the definition of "Amount invested", which, according to the Glossary is:

"... the actual dollar amount you have invested in a security to date. It includes any expenses such as commissions and fees. It does not include reinvested amounts, such as reinvested dividends, interest, or capital gains distributions.

"By default, Quicken calculates the Amount Invested over your entire account history. ...."

And a note near the bottom of the definition may hold the key, which I think will depend on Quicken's interpretation of this statement:

"Amount invested does not decrease when you sell shares (unless you sell all shares of a given security - then it goes to zero) ...."

It sounds like Quicken interprets this last sentence to mean:

"Amount invested does not decrease when you sell shares (unless you sell all shares and no longer own any shares on the 'As of' date on the Portfolio tab)".

and it further says that "Quicken can also report the Amount Invested for a specific date range. Change the date range by changing the Portfolio's From or As of Date ...". I don't know how to do that. The only date I can change is the date in the Portfolio View. Changing that date prior to 12/13/05, say to 8/2/05, won't even display the stock because I didn't own any of the stock on 8/2/05.

What I did do was to select "Options" and then "Show Return Calculations From" 8/02/05. This picked up the shares purchased on 12/13/05 but it excluded previous shares and the Amount Invested is now correct. Amazing!!

RC,

Thanks for the response. I found out how to do it - see my last response to John Pollard. As far as I'm concerned the Help Files and Glossary weren't particularly helpful. I was simply trying to have Quicken show me what they call "Yield on Investment" (Estimated), ie. Current dividend/investment (aka "cost basis"). I couldn't get the proper "Cost Basis" until I went through the process I outlined.

Arnie