Understanding "gain" while transferring btwn funds in IRA

[tomseeley]

I’m not entirely sure how to explain how I use FM and what I want to learn from it, so this may sound convoluted. I don’t use it for very much of the sophisticated things it’s capable of, but for what I do use it for, it works for me extremely well. I just want to be sure I’m understanding what it’s telling me.

I do not use FM for anything official for tax purposes.

All my money is in traditional or Roth IRAs, so strictly speaking I don’t think I need to track cost basis. I only need to track withdrawals throughout the year, for RMD tracking and for estimating taxable income for estimated tax planning purposes.

My main reason for using it is to see how much I’ve “gained” in each of my funds throughout the year. I’m interested in how well each of the funds I’ve chosen is doing, compared with how well others might do, if I decide to rearrange stuff when I rebalance, etc. I look at %gain and yield in the Portfolio Performance Report, for each of my funds, and I either get excited or distraught, as the case may be, throughout the year! I look at beginning and current portfolio value and I take into account however much I’ve actually put into or pulled out of a fund during the year, compared with total change in value. If I’m ahead of the game, I get happy. If I’m not, I get depressed!

I want to understand %gain and change in value from beginning to current date, taking into account how much money I’ve transferred into a fund when I rebalance my funds, how much I've actually withdrawn from a fund during the year, and how much the value of the fund has actually increased or decreased.

I’m not entirely sure how I should record transactions when I tell Vanguard to transfer $5,000 (for example) from one of the funds in my traditional IRA to another of the funds in my traditional IRA, since some of the shares transferred into a fund seem to be carrying with them the unrealized gain those shares had accumulated in the fund they’re coming out of.

I’m interested in how much gain or yield I’m getting on each fund, and I’m not sure how to interpret those figures when I move $ between funds via "transfers between".

And I’m not sure how to interpret the difference btwn beginning and current value when some of the change is due to moving money into a fund, some of it is due to change in share price, and some of it may be due to unrealized gain in the previous fund being moved into the new fund I've transferred shares into.

Can anyone help me understand this better than I do now?

Thx.

[Mark]

Hi tomseeley,

When you are rebalancing between funds you should use sell and buy transactions instead of transfers. Transfers are when no money is involved, you don't want capital gains events, and the original cost basis information needs to be transferred. They are also more complicated. In your situation buys/sells are more appropriate.

If you want to compare performance of your underlying funds, use a performance metric based off share price, instead of your invested money. For this see the Time Weighted Return (TWR).

%Gain numbers are based off your Out Of Pocket (OOP) invested money. They are not time weighted. When you have money going in/out during a time period under evaluation, they can be misleading. A better performance metric of your invested money is ROI yield. These are time and money weighted. If you're looking at a period where there was no activity, %Gain and ROI yields are equivalent.

For some background reading and greater understanding of the different performance metrics, you might like to read:

https://www.fundmanagersoftware.com/help/yields.html

and

https://www.fundmanagersoftware.com/hel ... n_oop.html

[tomseeley]

Outstanding, Mark! It works perfectly. Just what I wanted. Thank you very much.