Is Vanguard's "unrealized gain/loss" calculation screwy?

[soupcxan]

If you have an account with Vanguard, their website will show you the "unrealized gain/loss" associated with each fund you hold in a taxable account. They calculate this as (current market value) - (total cost of shares). This sounds reasonable, but looking at some of my funds, it seems that the loss they're showing is much greater than it should be (I made a lot of purchases over the last two years before things headed down).

It looks like the reason the loss they show is greater than I'd expect because they count all reinvested dividends and capital gains in your total cost of shares. But if the fund makes a distribution, it didn't really "cost" me anything - so this seems to be inflating my cost of shares. For example, if I buy $100 worth of a fund, and at the end of the year the price is the same, then they distribute a $2 capital gain that is reinvested, Vanguard would show my cost of shares at $102 but the value of my holdings is still only $100, so they would show a $2 unrealized loss. But from my perspective, I haven't really lost anything - I paid $100 and the fund is still worth $100.

Has anyone else experienced this? Am I missing something?

 

[kaneohe]

VG is showing your unrealized gains using your IRS approved tax basis which is your original cost plus reinvestment cost (including your reinvested cap gains/dividends).
Your "imaginary"unrealized loss of $2 is balanced by your "real" realized gain of $2 for a net of zero which agrees w/ your gut feeling. It kind of evens out in the end taxwise .

 

[donheff]

Your "imaginary"unrealized loss of $2 is balanced by your "real" realized gain of $2 for a net of zero which agrees w/ your gut feeling. It kind of evens out in the end taxwise .

Don't forget, you already paid tax on the $2 distribution.

 

[FIREd]

Vanguard uses your tax cost basis which includes your initial investment plus everything else that was reinvested including dividends and capital gains.

For example, if I buy $100 worth of a fund, and at the end of the year the price is the same, then they distribute a $2 capital gain that is reinvested, Vanguard would show my cost of shares at $102 but the value of my holdings is still only $100, so they would show a $2 unrealized loss. But from my perspective, I haven't really lost anything - I paid $100 and the fund is still worth $100.

So in this case you paid taxes on $102. If your investment is still worth $100 and you sell it, you get to claim a $2 loss on your tax return.