Replies to post #36244 on A.I.M. Users Bulletin Board (AIMUSERS)

[OldAIMGuy]

Hi R, Re: Commissions...............

For my part, I agree with the commissions that your way is one way. The other would be to use $7.10 as the cost per share which would include the commission and would automatically reduce the cash without a separate transaction.

Keeping track of the costs of shares including commissions and tracking gains after commission cost is very important. If the trade costs $10 going both directions, you certainly want to account for it since maybe the gain on the sale would be gross $210 making the net $190. You will only pay Uncle Sam on the Net, so it's worth tracking.

Relative to the Annual Expense Ratio of mutual funds, ETFs, CEFs etc:
I see no need to keep track of such a number inside AIM since you never see it anyway and don't write a separate check for it. The AER is deducted from the net asset value of those investments and you never see it. Since you can't buy the investment without it, why bother to track it? One can't get a better discount on the AER either. It's an uncontrollable cost of doing buisness and isn't factored into the Bid/Ask range or any other aspect. Also, it doesn't figure in to taxation of capital gain in any direct and measurable way.

Best regards,

[Conrad]

RCA420

Commissions:
$10 commissions per trade and I'm buying 100 shares @ $7 per share which totals to $710 with commissions included. Now I'd be adding $350 to Portfolio Control, $700 to Stock Value and subtracting $710 from Cash.

I noticed that Tom Veale already answered your question, so I just add a bit to that: To see the investment as $ 710 instead of $ 700 is very logical as equities generally are "loaded" up with hidden fees beyond the basic commodity you are investing in.

For example is I own stock and it is listed @ 100 I would give a Sell Order for $ 110. . .if you buy it you are paying me $ 10 for my profit and then you pay the broker his fee on top of that. . .The difference between what you pay me extra(my profit) and the fee(s) of the broker(s) are essentially no different in character: it simply is part of the Investment Cost.

So instead of adding $ 350 to the PC you might just as well add $ 355 to the PC, and this does not stop there: Any costs you run into for "running" you portfolio are investment costs and ought to be added to the investment at the time you buy the shares.

In relation this any costs that you can not add to the share purchase at the appropropiate time can be added as an investment just in the same way as you considered the Original Cash you allocate to you Portfolio.

Say you start your portfolio with $ 20000

Cash = 10000
Shares = 10000. . . . .PV = 20000 <-------This is you Investment IF you consider the allocated money as The Investment.

Each time you buy shares you add the $ 10 costs to the share cost. This gives you, at the end of the run:

Profit = Value - 20000. . . . .Yield = Profit/20000

Should you, at say after 1 year, have a big investment expense such as for example the fees of a professional investment consultant @ $ 5000 then you ought to add that to the investment Value. You can do that in different ways:

1. After 1 year you add $ 5000 to you Portfolio Reserve and from that you pay the consultant $ 5000. . . .You investment is now $ 25000.

2. You can treat the $ 5000 as costs that have accumulated proportionately over time so that your Average Investment for the whole year is $ 20000 + $ 5000/2 = $ 22500.

Profit = (Value - 25000)
Yield = Profit/22500

3. In principle you could do the same with the Commission of $ 4 per year

Profit= (Value - 20004)
Yield = Profit/20002

but as Ton mentioned, for such small amounts it makes no sense to keep track of it if it happens only one per year.

If you want to be accurate and incorporate your investment costs into your AIM Portfolio in a systematic manner you could use the Vortex ROTAC Method for tracking Costs and the Yield based on the Time Average Injected Capital. . .At any arbitrary time it calculates the Accumulated Cost(tax deductable) and the Time averages Investment and the Yield based on the time averaged Investment at any arbitrary moment in time:

ROTAC = Return On Time Averaged Capital

Profit = Share Value – Total Capital Investment)
Yield = Profit/(Time Averaged Capital Investment)

Regards

[Adam]

Hi RCA, The expense ratio in ETFs and other funds is already included in the share price. As far as commission, while it does make a difference in the profit from each trade, personally I don't think it's worthwhile to include that in the AIM spreadsheet.