Accounting records for your investments

[younginvestor2013]

I posted a thread recently regarding the accounting method used for tax purposes (specific ID, LIFO, FIFO, etc). This has got me pondering another topic that I thought I would post to hear your input.

How do you account for your investment contributions, withdraws, dividends, appreciation, etc? Do you follow a specific process to account for every penny in NAV (net asset value) in routine intervals (i.e., weekly, monthly, quarterly, etc)?

Working in finance and accounting, I should maintain accurate records. However, after doing that at work for 7-9 hours a day, it is challenging to come home and force myself to do that for my own personal investments. While I do check performance metrics frequently, I don't have any accounting process set up to track every penny. I would like to become a bit more diligent; however, being in my mid 20s and 100% invested in equity index ETFs, I am pretty much on auto pilot and (apparently) trust Vanguard with my money.

I suppose I value the ability to come home from work and do as I please (lounge, work out, eat, clean, sleep, etc) instead of accounting for every penny in my brokerage accounts....

 

[brewer12345]

What exactly would you gain from this? I have a position spreadsheet where I capture everything across two brokers, a 401k plan, a cash balance pension, a couple credit unions and treasury direct. I use it to keep track of my net worth, asset allocation, and concentrations. I don't care what my basis is in every single investment.

 

[FIREd]

Quicken takes care of that with very little work on my part.

 

[CyclingInvestor]

Excel + Copy/Paste (from my brokerage account) pretty much takes care of everything. I do have to modify an equation or two occasionally, maybe 10 minutes/month.

 

[Texas Proud]

I am an accountant also...

I do not keep track of how much I am investing... I let Vanguard keep track... I make adjustments now and then, but still don't care where the money came from.... I am only interested in how the portfolio is doing... Vanguard gives me that info, so I am happy....

I did keep track when I was younger.... but finally figured out that it is a 'who cares' exercise.... nobody else but me... and I finally decided to only care if I were on track to get where I wanted or not... IOW, it only matters what my total is now, not how I got here....

 

[sailor]

Quicken set up for automatic downloads from multiple brokerages does it for us with minimal manual supervision.

 

[jon-nyc]

What exactly would you gain from this? I have a position spreadsheet where I capture everything across two brokers, a 401k plan, a cash balance pension, a couple credit unions and treasury direct. I use it to keep track of my net worth, asset allocation, and concentrations. I don't care what my basis is in every single investment.

Presumably you'll care in decumulation phase.

I have a spreadsheet similar to what you describe, but mine includes a cost basis page and a transaction log.

 

[MichaelB]

If the investments are in tax deferred accounts the cost basis per investment is not useful, except to measure return. Ours are all taxable accounts, and I used to keep a record of each transaction. Now that the broker or fund custodian must do that and report it to the IRS I'm not so motivated to continue, at least for new investments since the regulations took hold.

 

[LOL!]

We use MSMoney. We make very few transactions, so entering numbers a few times a year is easy. Our brokers have very good annual statments with the transactions on them, too. We save all annual statements.

Perhaps the peskiest entries are the 1 cent interest per month in one or two cash sweep accounts, but these are shown in total on the year-end statement and the 1099DIV or 1099INT, so they can be reconciled once at year-end.

 

[donheff]

What exactly would you gain from this? I have a position spreadsheet where I capture everything across two brokers, a 401k plan, a cash balance pension, a couple credit unions and treasury direct. I use it to keep track of my net worth, asset allocation, and concentrations. I don't care what my basis is in every single investment.

Excel + Copy/Paste (from my brokerage account) pretty much takes care of everything. I do have to modify an equation or two occasionally, maybe 10 minutes/month.

+1 I do the same. I use links to Google Finance to track current prices and values. The spreadsheet tracks totals, annual withdrawal, AA, etc. I don't attempt to verify the accuracy of dividend distributions, etc. I stopped balancing my checkbook 30 years ago after three discussions with my bank that proved my "catch" wrong in each case.

 

[scrabbler1]

Having worked with spreadsheets my entire working career, creating them for my own investments was no big deal. I did not have a PC when I first began investing in 1990 (and my 401k in 1986), so I kept track of things on pencil and paper (not for my 401k).

I would post each transaction (purchase, redemption, dividends, cap gain distributions) in the spreadsheet and post a mid-month aggregate amount of my investments which coincided with my local bank statement. I would also take a year-end snapshot. Over the years I added things to the spreadsheets such as cost basis and redemption calculations.

My 401k had only quarterly statements so there was less frequent postings in the spreadsheet I eventually created. Same for my company stock which I eventually merged with the 401k after my company did the same. When I later rolled it into an IRA after leaving the company, I created a spreadsheet for the IRA. I get statements every month so those spreadsheets are set up like those for my taxable investments minus all the cost basis stuff because there are no tax implications.

 

[Willers]

Quicken set up for automatic downloads from multiple brokerages does it for us with minimal manual supervision.

+1
Quicken does a great job of organizing this info with minimal work on my part.

 

[brewer12345]

Presumably you'll care in decumulation phase.

I have a spreadsheet similar to what you describe, but mine includes a cost basis page and a transaction log.

Since my broker keeps track of cost basis and I have to abide by what they report to the tax authorities, I could not care less about maintaining my own records.

 

[jon-nyc]

Well, they do now. Do they have basis on your positions from 10 years ago? Or 3 years ago? Vanguard didn't have mine (though I sent them a copy of my spreadsheet earlier this year an they uploaded it)

 

[pb4uski]

Quicken set up for automatic downloads from multiple brokerages does it for us with minimal manual supervision.

+1 All in Quicken and all autodownloads. Run One-Step Update every once in a while, a few clicks to review/accept any transactions and I'm done.

After the initial set up perhaps 5 minutes a month.

 

[Animorph]

Quicken weekly, with a reconcile to DW's not-quite-retail 401k fund values every two weeks. Spreadsheet with Yahoo price downloads from the web every two minutes to monitor price targets and other to-do items.

 

[brewer12345]

Well, they do now. Do they have basis on your positions from 10 years ago? Or 3 years ago? Vanguard didn't have mine (though I sent them a copy of my spreadsheet earlier this year an they uploaded it)

Yes, Schwab does. Yet another manner in which Schwab's service is superior to Vanguard'S.

 

[donheff]

Since my broker keeps track of cost basis and I have to abide by what they report to the tax authorities, I could not care less about maintaining my own records.

Well, they do now. Do they have basis on your positions from 10 years ago? Or 3 years ago? Vanguard didn't have mine (though I sent them a copy of my spreadsheet earlier this year an they uploaded it)

When I started investing decades ago I simply assumed all custodians kept basis information. The idea that these outfits offer automated reinvestment of dividends but that individuals would have to track them and do the math seems insane. I was shocked many years later to discover that IRS expects people to do just that. Fortunately, when I transferred assets from my brokerage to Vanguard I learned that the brokerage could jin up a spreadsheet with my cost basis (average cost method). I then added that info to the Vanguard data base and they have kept track since then. I do worry that some vague copy of a spreadsheet from a brokerage will not be considered suitable documentation by IRS in the event of an audit but what can you do?

Speaking of which, how they heck are you supposed to indicate the purchase date on sales reported to IRS on your tax forms when you use average cost method? I use the earliest date of purchase if I know it or just pull a number more than two years old out of my a** if not. Am I at risk?

 

[Greg V]

While accounting for every penny and every transaction may not pass the effort vs reward test for everyone (calculating your rate of return is probably the main purpose), keeping track of the basis for your IRAs can be important for tax purposes. If you have nondeductible contributions to Traditional IRAs, basis data will reduce your taxed once your are withdrawing. Knowing your basis for Roth IRAs is important if you want to withdraw from your Roth, without penalty, prior to age 59 1/2.

While brokerages keep track of cost basis for investments, I have not noticed anywhere they keep up with IRA cost basis. With rollovers, etc it could be tough for them to have accurate data.

 

[Texas Proud]

Well, they do now. Do they have basis on your positions from 10 years ago? Or 3 years ago? Vanguard didn't have mine (though I sent them a copy of my spreadsheet earlier this year an they uploaded it)

I do not know about stocks, but they do with MFs.... I can take a look at every purchase I have made... I think up to 9 years.... but they do have my basis for all my MFs from whenever purchased...

 

[RE2Boys]

Taxpayers are required to report the sale of capital assets on their Form 1040 individual income tax returns using Schedule D. Financial institutions provide some help by reporting the transaction to both investors and to the IRS.
Before 2011, financial institutions have only been required to report the proceeds of investment sales — not the actual gain or loss. Under new federal rules, institutions will report to the IRS gains and losses realized from the sale of:

• Individual stocks purchased after Jan. 1, 2011
• Mutual fund shares purchased after Jan. 1, 2012
• Bonds, options and other securities purchased after Jan. 1, 2014

Collectively, investments acquired after the above dates are called "covered securities," because they are covered by the new IRS regulations. It's important to note that investors will still be solely responsible for calculating and reporting gains and losses realized on the sale of noncovered securities — those acquired before the above dates.

While financial institutions may report a basis to you, if it is a noncovered security, it is up to you to verify that the basis is correct, and it is not reported to the IRS. If you have changed brokers, high probability that your current brokerage does not have an accurate basis. I do about 180 tax returns a year and it is a very common problem. If anyone has noncovered securities, It'd be a good idea to start now investigating your cost basis.

 

[Texas Proud]

While accounting for every penny and every transaction may not pass the effort vs reward test for everyone (calculating your rate of return is probably the main purpose), keeping track of the basis for your IRAs can be important for tax purposes. If you have nondeductible contributions to Traditional IRAs, basis data will reduce your taxed once your are withdrawing. Knowing your basis for Roth IRAs is important if you want to withdraw from your Roth, without penalty, prior to age 59 1/2.

While brokerages keep track of cost basis for investments, I have not noticed anywhere they keep up with IRA cost basis. With rollovers, etc it could be tough for them to have accurate data.

That is one reason that I never invested after tax money into a 401(k) or IRA.... I saw only bad options with them...


But, I lie.... I did do it a couple of years ago and did a backdoor ROTH conversion.... it was my only non-ROTH IRA, so it was easy to figure out....

 

[kaneohe]

Speaking of which, how they heck are you supposed to indicate the purchase date on sales reported to IRS on your tax forms when you use average cost method? I use the earliest date of purchase if I know it or just pull a number more than two years old out of my a** if not. Am I at risk?

Probably not. The tax software I have used uses VAR (for VARIOUS) when the transactions are combined and long term.

 

[donheff]

While financial institutions may report a basis to you, if it is a noncovered security, it is up to you to verify that the basis is correct, and it is not reported to the IRS. If you have changed brokers, high probability that your current brokerage does not have an accurate basis. I do about 180 tax returns a year and it is a very common problem. If anyone has noncovered securities, It'd be a good idea to start now investigating your cost basis.

So how do you address this common problem when your clients do not have documentation? Also, to the extent that clients have used their best estimate about dates and costs have they withstood audit? DW and I have never been audited and pay enough tax that we won't jump out of the IRS computers but...

 

[RE2Boys]

So how do you address this common problem when your clients do not have documentation? Also, to the extent that clients have used their best estimate about dates and costs have they withstood audit? DW and I have never been audited and pay enough tax that we won't jump out of the IRS computers but...

Frankly, I've never had the issue where the IRS challenged the basis of a common security or mutual fund transaction. In most cases, not enough potential revenue to make it worthwhile. But if the sum of your 1099B's reported to the IRS is more than what your reported as proceeds on your tax return, the IRS will catch that, it's a simple computer records match. IRS will send a dunning notice and assume zero basis for the shortfall.

Often we make a good faith effort to establish a date or approximation and use internet tools to determine the approximate basis, and document for our records how we arrived at that figure.

Whole different ball game when come to sale of a share in a business, including publicly traded partnerships. The latter, you can't just take off the brokerage statement but must go through the calculations as outlined in the voluminous K-1 additional info as special treatment of some items in the past will require an adjustment to basis in calculating cap gains/loss.