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In 1997 I invested $2,000 in a mutual fund. In 1999 I made 4 additional purchases of $150.00 each. All dividends were reinvested. Using Quicken to track my investments, it calculates the return on investment using the basis of all purchases -- including those made through dividend reinvestment.

It is my opinion that the true return on investment is the total gain minus only that money which I have used out of my pocket -- that is, a total of $2,600.

Which provides a more accurate return on investment: The total value minus the total basis including purchases using the reinvested dividends? Or the total value minus only my out-of-pocket purchases?
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You wrote: Which provides a more accurate return on investment: The total value minus the total basis including purchases using the reinvested dividends? Or the total value minus only my out-of-pocket purchases?


Since you reinvested your dividends, the later is more accurate. However, you must also account for and deduct your tax liability unless the fund is tax exempt or tax differed.

Take care.
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I would personaly use total value-(all purchases and all expences)
In other words I would total up any tax liability $10 + commosion fees (if apllicable) management fees (for example on my share builder account I have six "free monthly purchases" at $12 or lets say it was a timed market order there would be a fee of $15 I would use the one figuer that would apply if it was a monthly I'd use $12/6 or $2 (if I only had 3 monthlys I'd use $4) If it was a market timed or one off purchase I'd use the commision fee (both for purchase and sell), I would also subtract the fee for any media fees directly related to that stock. Lets say it was one of five Hidden Gems from the fool site, I would subtract the fee say $200 (I'm using arbitrary numbers out of lazyness) divided amoung the 5 stocks (thatI persona;y researched and formed my own opinion one their value and future perfomance after reading about them in hidden gems) wich comes out to $40, if I spent an inordinate amount of time researching that stock I'd subtract an arbitrary dollar figure for my time (what ever I thought my time was worth), I'd even make sure book and magazine purchases were taken into consideration. Every dollar that came out of my pocket for that stock would be deducted from the selling price or current value including ones that I have'nt yet but will have to such as selling commosions. Every last greenback that was for that stock. To most people this must sound a bit anal, however; all the same Im single make under $40,000 a year and am forced to budget out every last dollarfor me those $30 subscriptions and fees for this and that eat away my hard earned cash and have to go "somewhere" in my budget.

Anyway at the very least figure in all fees and your purchase price.
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p.s.
I'd say that dividends are all profit (after all those deductions it comes in for a little "reinforcement" of those gains)
sorry I'm a bit long winded
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