External Cash Flows

[stevetone]

Just found out I may have been using the "Transfer Between" dialog in a way that presents misleading information on the Portfolio Performance report. At least in my opinion it's misleading

When exchanging investments within the same 401k account, I was using the Transfer Between dialog, which creates a "Transfer Out" and a corresponding "Transfer In" transaction. This made sense to me, particularly since there is no intermediary cash account within a 401k.

However, now looking at the Portfolio Performance report's "Withdrawals" column, I find that the report treats this as an external transfer (gleaned after finding it in the Help file). This causes it to be listed as a withdrawal, which it was not.

So, is the "proper" way to record these exchanges with individual Sell and Buy transactions? This is WAY more work than the helpful "Transfer Between" dialog, but if it creates a more explanatory report, then that's what I'll have to do.

Steve

[stevetone]

Forgot to mention that the "Transfer In" transaction that is generated by the "Transfer Between" dialog also produces a Contribution entry on the report. That's misleading as well...

[Mark]

Hi stevetone,

Yes, all transfer transactions are considered as "external" for cash flow determination. You can use a buy and sell to keep them considered internal.

[stevetone]

While investigating how to correct my transactions I came across a couple of other things that do not make sense to me:

I sold a position in one investment, but did not purchase the same dollar amount of another investment. This is clearly an internal transaction, i.e., no removal of funds from the account occured. The excess uninvested cash remained in the default cash account.

However, on the Portfolio Performance report, the sale is listed as a Withdrawal. In reading the help file, I understand that this is because the dollar amount invested in the purchase transaction was not exactly the same as the amount from the redemption transaction.

This makes no sense to me, IF the purpose of the Withdrawal column is to be a valid reflection of cash flowing out of the portfolio.

The other puzzling thing to me is that the totals at the bottom of the report for the Contributions do not add up to the total of the entries above it. In some instances I cannot fathom any relationship between the totals and the transactions above. Yes, I have "unhidden" all investments.

This oddities make it very difficult to explain reports to clients. Imagine sitting down and trying to answer the questions "Who withdrew funds from my account?", or "Why does the total not add up to the entries above it?"

Steve

[stevetone]

Also, in the Withdrawals column, the total at the bottom does not add up to the entries above it. In this particular case, There were two entries, $6,410.67 and $8,217.54, yet the total at the bottom was $0.00.

[stevetone]

Additional findings: Even when I have the dates and dollar amounts exactly the same, the transaction is still indicated on the Portfolio Performance report as a Withdrawal.

This seems to conflict with the following in the Help file:

"For purposes of determining portfolio internal/external transactions it is not necessary that one side of the transaction come from a default cash account. This is usually the case, but as long as there is a corresponding entry with the same value and same date anywhere within the same sub-portfolio, the transaction will be considered internal."

[Mark]

Hi stevetone,

I believe the issue causing confusion is the difference of internal versus external at the investment level versus at the portfolio level. The Contribution/Withdrawal columns will not usually add up to the amounts shown at the portfolio level. The contributions/withdrawals displayed are relative to each line item, so for an investment, it is relative to that investment. For a portfolio, it is relative to that portfolio.

This can be confusing, let me try to clarify with an example. Assume you bought $1000 of stock X, and sold $500 of stock Y. You should have 4 total transactions recorded for this:

buy Y for $1000
sell cash for $1000
sell X for $500
buy cash for $500

In this example, these are all considered internal at the portfolio level, and you will not see any contributions or withdrawals at the portfolio level. You will however see a contribution of $1000 on the stock Y line, since you added $1000 to stock A. It is relative to this investment that you contributed money. You will also see a $500 withdrawal at the stock X line. You will see a $500 contribution and a $1000 withdrawal at the cash level. All these investment level contributions/withdrawals are just showing that just looking at this one investment how much did you add/remove. At the portfolio level in this example, there was no external transaction relative to the portfolio, so your report level contributions/withdrawals will be $0.

In that same help topic you quoted, right above that, it tries to explain this by stating:

Internal purchases/redemptions and retained distributions are only meaningful for portfolio calculations. When calculating for any object besides a portfolio (investment, symbol, asset type, investment goal, investment type, or currency), contributions are any purchase in that object, withdrawals are any redemption, and all distributed distributions are categorized as withdrawn from that object. (Internal purchases/redemptions and retained distributions are all zero for non-portfolio objects).

[stevetone]

Thank you for your thorough reply. I think I get it now.

Steve