In This Chapter
Setting up a brokerage account
Describing the securities in a brokerage account
Transferring cash to and from a brokerage account
Buying stocks and bonds from a brokerage account
Recording income from securities held in a brokerage account
Recording margin interest, miscellaneous income and expenses, and return of capital
Updating securities prices
Adjusting your brokerage cash balance
Adjusting your brokerage account shares
After you understand how Quicken handles tax-deferred investments, working with a regular taxable brokerage account (and the extra complexity that such an account typically includes) is a snap.
Tip
If you haven't yet used Quicken for tax-deferred investment record keeping or read Chapter 13, I recommend you at least skim Chapter 13. That chapter provides some useful information about the fundamentals of investment record keeping with Quicken.
Setting up a brokerage account is similar to setting up a regular tax-deferred account. Because I describe this process in painstaking detail in Chapter 13, I don't repeat the discussion here.
The one bit of information that I will note is this: During the investment account setup process, when Quicken asks you what kind of account you're setting up, specify that you're setting up a standard brokerage account.
If you've already read or skimmed Chapter 13 (which talks about using Quicken to track tax-deferred investments), you may remember a section titled, "Recording your initial investment." That little section explains how to tell Quicken what you paid for the mutual fund shares, stock shares, and so forth, held in your tax-deferred investment account.
Okay. So here's the deal. Just as you need to describe your starting share balances when you set up a tax-deferred investment account, you need to describe your starting share balances when you set up a standard brokerage investment account. In other words, if you own three stocks in your brokerage account — IBM, GE, and Boeing — you need to describe how much you paid and when you purchased your IBM, GE, and Boeing shares.
Tip
Rather than copy that earlier discussion (I'd literally be copying and pasting material from Chapter 13), let me refer you to the "Recording your initial investment" section in Chapter 13. Go through the nine-step process described there for each stock you hold.
Brokerage accounts work like tax-deferred accounts, which I describe in Chapter 13, except for a handful of minor differences.
Essentially, only three general differences exist between tax-deferred investment accounts and brokerage investment accounts:
Brokerage accounts typically use more extensive security lists (whereas tax-deferred investment accounts don't).
Brokerage accounts have cash accounts (whereas tax-deferred investments usually don't).
Brokerage accounts let you record a handful of goofy transactions that tax-deferred investment accounts don't (because they don't make sense in the context of conventional tax-deferred investments).
I spend the next few paragraphs of this chapter describing features that are unique to brokerage accounts.
Typically, a brokerage account probably contains more than one type of security. You may have shares of Boeing, General Motors, or Google. You name it, and someone owns it.
Therefore, a brokerage account uses a list of securities — and you, as the investor, need to create and maintain the list of securities (stocks, bonds, and so on) that your account holds.
To do so, set up the brokerage account (as described in the first part of this chapter) and then complete the following steps:
Choose the Security List command.
Display the Investing tab, click the Investing Lists button, and choose the Security List command. Quicken displays the Security List window, shown in Figure 14-1. Note that any mutual funds you've already set up appear in the list as securities.
Click the New button in the Security List window.
Quicken displays the first Add Security To Quicken dialog box, shown in Figure 14-2.
Enter the stock symbol for the security in the Ticker Symbol text box.
If you don't know the symbol, make sure that you have the name of the security correct and then click the Look Up button to search for the ticker symbol at
Quicken.com.Click Next to continue.
Quicken retrieves information about the stock whose ticker symbol you entered and displays it in another Add Security To Quicken dialog box.
Click Done.
Quicken adds the security to the security list and redisplays the Security List window. If you have additional securities, you can add them by repeating Steps 2–4. Also, you can add securities on the fly while you're recording the purchase of a security for the first time. When you do this, Quicken starts this little "Oh, let's add another security to the list" process for you at Step 3.
Tip
Before I quit this discussion of the security list, let me just make a couple of observations for your benefit. See those buttons at the top of the Security List window? (Go ahead and flip back to Figure 14-1.) You can use them to do useful stuff. For example, click Edit to change security information. Click Delete, predictably, to remove a security from the list. Use Hide to hide the selected security, Choose Market Indexes to select which security indices you want Quicken to report, Report to display the security report window, Print to print the list, and Options to view or "un-view" (is that a real word?) previously hidden securities. Just thought you'd want to know.
One of the big differences between a brokerage account and a traditional tax-deferred investment account is that a cash management, or money market, account is always, always attached to the brokerage account — and is actively used.
When you initially set up a brokerage account, your money goes into this account. (The broker bought you a doughnut and coffee in this meeting, remember?)
You purchase your first shares with the cash from this account. And when you sell shares, all cash proceeds go into this account.
Because you work with cash in a brokerage account, you need to know how to record the cash that flows into and out of the account.
To transfer cash to an account, follow these steps:
Display the investment account's window.
You can do this in more than one way, as luck would have it, but one easy way is to click the investment account on the Accounts bar. The investment account window should look something like the one shown in Figure 14-3. (If you're lucky.)
Indicate that you're transferring money.
Click the Enter Transactions button. Quicken displays the dialog box shown in Figure 14-4. Choose Cash Transferred Into Account in the Enter Transaction drop-down list box.
Record the transaction date, amount, and account.
To record the amount of a cash transfer, confirm the transaction date (shown in the Transaction Date text box), enter the dollar amount in the Amount To Transfer text box, and then specify the checking account supplying the cash in the Transfer Account drop-down list box. Then click the Enter/New or the Enter/Done button. (If you click Enter/New, Quicken records the transaction but leaves the dialog box open so that you can record some more transactions.)
Tip
To transfer cash from an account, follow these steps:
Display the investment account window.
Indicate that you're transferring money from an account.
Click the Enter Transactions button. Quicken displays the dialog box shown in Figure 14-5. Choose Cash Transferred Out Of Account in the Enter Transaction drop-down list box.
Record the transaction date, amount, and account.
To record the amount of a cash transfer, again confirm the transaction date (using the Transaction Date text box), enter the dollar amount in the Amount To Transfer text box, and specify the checking account receiving the cash in the Transfer Account drop-down list box. Then click either the Enter/New or the Enter/Done button.
Buying and selling securities in a brokerage account is very similar to buying and selling shares of a tax-deferred investment. You fill in the same fields in almost the exact same way.
Display the investment account window.
Click the Enter Transactions button. When Quicken displays the dialog box, choose Buy - Shares Bought in the Enter Transaction drop-down list box.
Quicken, ever responsive to your needs, displays the Buy - Shares Bought dialog box (shown in Figure 14-6). When Quicken displays this dialog box, provide the transaction date. Select the security in the Security Name drop-down list box. Use the Number Of Shares, Price Paid, and Commission text boxes to describe your purchase. (You can get this information from your order confirmation slip.)
Indicate whether Quicken should adjust a cash account.
Use the From This Account's Cash Balance or the From option button to specify which cash account Quicken should adjust for the transaction. You can say the usual cash account (by selecting the From This Account's Cash Balance option button) or specify some different account (by clicking the From option button and then choosing the account in the From drop-down list box).
Click the Enter/New or the Enter/Done button when you're finished.
Selling a security works in the same basic way as buying a security:
Display the investment account window and then click the Enter Transactions button.
When Quicken displays the dialog box, choose Sell - Shares Sold in the Enter Transaction drop-down list box.
Quicken displays the Sell - Shares Sold dialog box (shown in Figure 14-7). Use the Transaction Date box to provide the sales date. Use the Security Name drop-down list box to identify the stock, bond, or mutual fund you're selling. You use the Number Of Shares, Price Received, and Commission text boxes to describe your sale, and you use the To This Account's Cash Balance or the To option button to specify whether Quicken should adjust some bank account balance for this transaction.
Click the Specify Lots button.
If you purchased share lots at different prices or at different times, you can click the Specify Lots button to open the Specify Lots For Investment dialog box. Here, you can pick and choose which lots to sell so that you can minimize the capital gains taxes you'll owe. (Good idea, huh?) A lot is simply a batch, or set, of shares that you purchase at one time. If you sell the most expensive lots, you reduce your capital gains and the taxes on those gains.
The Specify Lots For Investment dialog box also provides nifty command buttons for automating the process of selecting lots. If you click the Maximum Gain or the Minimum Gain button, Quicken picks lots for you in a way that produces the largest possible or smallest possible capital gain, respectively. Alternatively, you can click the First Shares In or the Last Shares In buttons to sell either the oldest shares or newest shares first, respectively. This business about picking the lots you sell is rather arbitrary, of course. By letting Quicken pick lots, you can manipulate the capital gain you'll have and the capital gains taxes you'll pay. But it's all legal (as long as you specifically tell the brokerage company which lots you're selling). And honorable. And it can save you money because you can time your capital gains so that they occur when they'll cost you the least.
Warning
If you're someone who has large capital loss carryforwards — as many investors do after the brutal years of this decade — your capital loss carryforwards may totally wipe out any gains you have to recognize over the next few years (or decades, gulp). In this case, you may not get much benefit from fooling around with this specific identification business. Consult your tax advisor for details.
Click the Enter/New or the Enter/Done button.
Taking care of this stuff is easy. Any time you receive investment income, click the Enter Transactions button and choose Inc – Income (Div, Int, Etc.) in the Enter Transaction drop-down list box. When Quicken displays the dialog box used to record income, use the Security Name drop-down list box to confirm the stock, bond, or mutual fund producing income, and then use the Dividend, Interest, Short-Term Cap Gain Dist, Mid-Term Cap Gain Dist, Long-Term Cap Gain Dist, and Miscellaneous text boxes to record the amount and type of income, as shown in Figure 14-8.
Note: You use the Transfer Account drop-down list box to identify the account into which income amounts are deposited when you don't use the investment account's regular cash account.
Tip
To record dividends, capital gains, and other income when you reinvest the money you receive, click the Enter Transactions button and choose Income Reinvested in the Enter Transaction drop-down list box. When Quicken displays the dialog box, describe the amounts received and how you've reinvested.
Quicken lets you record all sorts of transactions in a brokerage account. Not only can you do reminder and stock split actions (which I describe in Chapter 13), but you can also do a bunch of other things.
I briefly describe these other transactions here and explain how to record them because you're more likely to encounter them when you're working with a standard brokerage account.
If you invest in bonds, you know that a bond's price is actually quoted as a percentage of its face value. A bond that sells for $950 with a face value of $1,000, for example, is quoted as 95 because the $950 price is 95 percent of the $1,000 face value. Quicken, however, doesn't let you describe a bond's price as a percent. You must enter the bond price as its price in dollars and cents.
You can use Quicken to record precious metal investments. Suppose, for example, that you're hoarding Krugerrands (1-ounce gold coins minted in South Africa). For this investment, the price is the price per Krugerrand, and the shares figure is actually the number of ounces (equal to the number of Krugerrands). Because Quicken doesn't supply price-per-ounce or number-of-ounces fields, you insert the information in the Price and Shares fields on the Investment list.
To record margin interest expense, click the Enter Transactions button and select Margin Interest Expense in the Enter Transaction drop-down list box. When you do, Quicken displays the margin interest expense version of the investment transaction entry dialog box, which you use to describe the cost of your financial adventure. Only the most sophisticated investors should be using margin interest expense, anyway. If you're one of these financial cowboys or cowgirls, I assume that you're smart enough to figure out this stuff on your own.
Sometimes you need to pay an expense. One rarely sees these occur for stock or bond investments. Expenses sometimes do arise with real estate partnership interests (which can be treated like common stock shares) or precious metal investments (which can also be treated like common stock shares).
If you need to pay a fee for account handling or for storing your stash of South African Krugerrands, for example, you can record such an expense by clicking the Enter Transactions button and then choosing Miscellaneous Expense in the Enter Transactions drop-down list box. When Quicken displays the dialog box, fill out the boxes in the miscellaneous expense version of the investment transaction entry dialog box.
The old return of capital trick. Sometimes, the money you receive because you own a security isn't really income. Rather, it's a refund of part of the purchase price.
Consider this example: You buy a mortgage-backed security — such as a Ginnie Mae bond — for which the mortgagee (the person who borrowed the mortgage money) pays not only periodic interest but also a portion of the mortgage principal.
Obviously, you shouldn't record the principal portion of the payment you receive as income. You must record this payment as a mortgage principal reduction or — in the parlance of investment record keeping — as a return of capital.
As another example, suppose that you invest in a limited partnership or real estate investment trust that begins liquidating. Some of the money that the investors receive in this case is really a return of their original investment, or a return of capital.
To record a return of capital action, click the Enter Transactions button. When Quicken displays the return of capital version of the investment transaction entry dialog box, choose Return Of Capital in the Enter Transaction drop-down list box and describe the security that's returning capital.
Quicken also supplies some other investment transaction types. Quicken provides special investment transactions to record the receipt of stock options, exercise of stock options, and repricing of stock options. Quicken also supplies investment transaction types for short selling and investment transactions for dealing with corporate mergers, spinoffs, and reorganizations. To use these other special investment transactions, you follow the same general approach described in the preceding sections.
Let me tell you a couple other quick things. You'll almost certainly find these tidbits helpful.
Regardless of whether you're working with a mutual fund account or with securities in a brokerage account, you can collect current market prices and store them with the Quicken account information.
To do so, use the Portfolio window (which you can open by clicking the Views button and choosing the Portfolio command) to display the investment account with the mutual fund shares or the securities that you want to update.
To record the current market price for a security, use the up-arrow and down-arrow keys to select the security (or click the security with the mouse). Then move the cursor to the Quote/Price field and enter the current price.
If you display the Investing tab, click the Investing Tools button, and choose the Online Research Tools command, Quicken displays a short menu of commands for accessing online research resources available through the Quicken.com Web site. I think that the Mutual Fund Finder is particularly valuable. And the other tools can also be pretty darn useful. By the way, if you do use the Mutual Fund Finder to look for good mutual funds, you should know that investment management fees are highly, highly negatively correlated with long-term investment performance. In other words, the higher the investment management fees, the lower the returns over long periods of time.
You can adjust the cash balance in a brokerage account and the shares balance in brokerage accounts if for some reason the figures are incorrect.
How you adjust the cash balance in a brokerage account depends on how you set up the account.
To adjust an investment account's cash balance, when the cash balance information isn't tracked in a separate linked cash account, click the investment account's name on the Accounts bar, click the Investing Actions button, and choose Investing Activities
To adjust an investment account's cash balance (or cash management account, as some brokerage houses call them), click the account name on the Accounts bar, click the Investing Actions button, and choose Investing Activities
To adjust the shares balance for a security in a brokerage account, click the brokerage account on the Accounts bar, click the Investing Actions button, and choose Investing Activities
Quicken next displays the Adjust Share Balance dialog box, shown in Figure 14-10, where you specify the security, the correct number of shares, and the date for which you're entering the balance. Fill in the text boxes and then click either Enter/New or Enter/Done. Quicken adjusts the shares balance for the security you specified.
If you've read this whole chapter, you know that I mostly describe how you get information into the windows and dialog boxes of the Investing tab. But before I stop talking about the Investing tab, I want to give you a little more information on how you can use the tab to monitor your investments.
The first thing to notice is that the Investing tab provides several views (available as menu commands when you click the Views button), each of which provides its own information: Account Overview, Performance, Asset Allocation, Portfolio, and Online Portfolio:
The Account Overview view simply lists the investment accounts you've set up within Quicken and provides a bit of high-level information about each.
The Performance view (see Figure 14-11) graphs your investment account values and lets you compare these values to some external benchmark, such as the S&P 500.
The Asset Allocation view provides charts and tables of information that let you see how your overall investments are allocated and how you've said they should be allocated (see Figure 14-12). (You need to have identified which asset category your individual investment securities fall into in order to see your portfolio allocation.)
The Portfolio view provides overall summary information about all your investment accounts (see Figure 14-13).
The Online Portfolio view displays the (currently free)
Quicken.comInvesting Portfolio Web site, which you can use to monitor all your investments and to perform investment research. For example, if you do register with theQuicken.comWeb site, you can download updated prices for your securities by clicking the Download Quotes button, which appears on many of the Investing tab's views.
The other thing I want to just mention in passing are the asset allocation and portfolio analysis tools available when you click the Investing Tools button. Through the Investing Tools button, Quicken provides several useful commands:
The Asset Allocation Guide command displays a Web page that provides lots of solid information you can use to think smartly about how you allocate your investments between stocks and bonds and other choices. (This command is definitely worth a few minutes of exploration on your part.)
The Buy/Sell Preview command lets you estimate the financial effect on your portfolio of buying and/or selling specific investments.
The Capital Gains Estimator command calculates the unrealized capital gains and losses in your investment portfolio using the most current prices available to Quicken.
The Portfolio Analyzer command displays a report that shows the overall return on your investment portfolio over a specified time horizon.
The Portfolio Rebalancer command displays a report that summarizes what buy and sell actions you should take to balance your investment portfolio so it matches the target asset allocation you've chosen using the Asset Allocation Guide command.
The Security Detail command displays the Security Detail View window, which lets you see all the information that Quicken has collected for a partnership security in your portfolio. (You specify which security you want to see details for by choosing the security from the drop-down list box in the upper-left corner of the window.)
The Online Research command displays a menu with six additional, self-explanatory commands that you can use to research investment choices. Rather than try to provide short descriptions of these commands, let me suggest you poke around these commands on your own.