On most PortfolioCenter Holdings reports, you’ll find a column for Cost Basis and Cash invested. Sometimes the numbers are identical and sometimes they differ wildly. Why?
Cost Basis is the value of an asset for tax purposes.
It is the total price paid for an asset which is used to determine the realized and unrealized gain or loss. The calculation includes: buys, receipts, credits and reinvested dividends which all increase basis; and sells, transfers and debits which all decrease basis.
Cash Invested is amount of cash the investor put into the asset from his pocket.
Cash invested is not used in tax reporting and is not affected by dividends, regardless of whether they are reinvested or not. The calculation of Cash Invested includes all the transactions used to find Cost Basis EXCEPT for reinvested dividends. Dividends are excluded because they are generated by the gains in the position, not additional cash from the investor’s pocket.
When a position contains only buys and cash income, Cash Invested and Cost Basis will be the same. As the position gains other transactions like sells and reinvested income, Cost Basis and Cash Invested will differ.
Three Types of Cash Invested
To further complicate matters, PortfolioCenter has three different Cash Invested calculations which all appear under the heading “Cash Invested” on PortfolioCenter Holdings reports. Cash Invested 1 is the default choice on most Holdings reports. Check your settings to see which one you’re using.
- Cash Invested 1 is calculated using an average purchase price per share and this number will never fall below zero:
Cash Invested 1 = (Purchase Price + Fees / # of Shares Held) x Quantity Held
- Cash Invested 2 computes the money invested through buys and sells and this number can be negative:
Cash Invested 2 = Purchase price of all buys (including fees) minus net proceeds of all sells
- Cash Invested 3 is calculated the same as Cash Invested 2, except the number will never fall below zero. When the calculation is negative, Cash Invested 3 will be zero on reports.