IRA Cost Basis variance


R

Rorry P.

In my IRA account, MS Money '05 reports a different Cost Basis than my
Financial Advisor reports it to be - MS Money reports my Cost Basis 3.7%
higher than my Advisor shows. I record detailed transactions, so our details
should be the same; we show the same current portfolio value.

This difference though causes us to have a difference in what my annualized
return is reported to be. My advisor reports my return to be higher than
Money shows.

Any advice?
 
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R

Rorry P.

I figured out perhaps part of the problem. Money seems to be adding the
Reinvested Dividends to the cost basis. Though Money and my Financial
Advisor's cost basis is still off a little bit (after excluding Reinvested
Dividends), we are really close (less than $9), to the point that I think
that's the difference. But I would think that Money would exclude Reinvested
Dividends from the cost basis, because it is not actually money that I
invested, but instead reflect part of the return on my investment. Your
thoughts?
 
D

Dick Watson

If it were a taxable investment, there is no question: the reinvested
dividend is now part of your basis and you do pay tax on it in the here and
now.

Cost basis and Return are different questions. Yes, the dividend is return.
But now you bought shares with it. That's cost basis.
 
C

Cal Learner-- MVP

In said:
I figured out perhaps part of the problem. Money seems to be adding the
Reinvested Dividends to the cost basis. Though Money and my Financial
Advisor's cost basis is still off a little bit (after excluding Reinvested
Dividends), we are really close (less than $9), to the point that I think
that's the difference. But I would think that Money would exclude Reinvested
Dividends from the cost basis, because it is not actually money that I
invested, but instead reflect part of the return on my investment. Your
thoughts?
You are referring to the basis of the IRA itself. Money is referring
to the basis of the investment.

Yes, reinvested dividends are included as part of the return on
investment. However in the definition of basis for the investment,
the re-invested dividends should be included. If you had taken those
dividends on the first investment and bought a different investment
within your IRA, would you say that different investment would have
a zero basis? I don't think so.
 
R

Rorry P.

Dick & Cal,

That helps some. It seems that I'm never going to be able to reconcile the
return % that Money reports, to the return % reported by my broker and/or on
CNBC or MSN, correct? For instance, I compared the 1 year 2004 return rates
reported in Money for each of my IRA funds, to the 2004 returns reported on
moneycentral.msn.com for the same funds, and in each case get differences.
Usually my MS Money program reports higher returns. I assume this means that
Money is counting dividends into the return rate, but that Wall Street does
not include dividends in return rate, correct?

How does one ever compare and contrast how MS Money indicates my investments
are doing, to what Wall Street reports those investments are doing?
 
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C

Cal Learner-- MVP

In said:
That helps some. It seems that I'm never going to be able to reconcile the
return % that Money reports, to the return % reported by my broker and/or on
CNBC or MSN, correct? For instance, I compared the 1 year 2004 return rates
reported in Money for each of my IRA funds, to the 2004 returns reported on
moneycentral.msn.com for the same funds, and in each case get differences.
Usually my MS Money program reports higher returns. I assume this means that
Money is counting dividends into the return rate, but that Wall Street does
not include dividends in return rate, correct?
No.

If you look at the Portfolio view, you can customize to select
various numbers to display.
ChangePortfolioView->CustomizeCurrentView->PortfolioColumns.
There are a bunch. The "Return" you are looking at may mean only
dividend rate without taking into account capital appreciation
portion of the gains. Select "Dividend Yield" if that is what you
want. Total Returns and Annualized Return include the effects of
dividends. When you look to choose from available columns, note
there is a Column Description.

"Wall Street" is not a single place/site. "Wall Street" does not
report only a single number. You may be focusing on a single number,
however.

How does one ever compare and contrast how MS Money indicates my investments
are doing, to what Wall Street reports those investments are doing?
You will want to know what Wall Street is reporting regarding the
number you are seeking.
 
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