Accouting question in regards to MF purchase from funds in MMF

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CedarWaxWing
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Accouting question in regards to MF purchase from funds in MMF

Post by CedarWaxWing »

A question in regards to how VG does the accounting of a mutual fund purchase from funds in the Fed MMF in my Roth:

The purchase was made with the following numbers after the market opened this am, and the purchase request was put in online to purchase 25,000 of the fund (25,000 is the max that can be purchased in any one year, since it is closed.)

25,000 was removed for the purchase, but since the shares purchased were rounded off, as expected, they only used 24,999.97 dollars from the MMF for that purchase but still took 25,000 out of the MMF instead of the cost of the purchase, 24,999,97. (24,999.9675 rounded up...)

Rather than replace the funds into the MMF (0.03 cents), or remove that amount that would actually be used for the purchase costs, they simply reported a short term loss of 0.03 cents.

Am I missing something or should they have put back into the MMF the 0.03 dollars that was not used in the purchase?

A small issue, but I like to understand things as much as possible, and it seems to me to be a software error on their part.

Is there anyway to avoid this in the future... since we never know the final cost of the MF at the time the order is placed?

Thank you.

Code: Select all


VPMCX                    Fund
Quatity                     144.4250
Cost per share              173.10
Market value purchased    24999.97
 Capital Gain/loss           -0.03  
Fed MMF dollars used      25000.00
Last edited by CedarWaxWing on Sat Jul 24, 2021 1:22 pm, edited 1 time in total.
Silk McCue
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by Silk McCue »

If at least a 5 business days hasn’t passed since you executed the transaction you might need to wait for this to settle out. I’ve seen some odd penny stuff similar to this in a transaction a month or two ago.

Cheers
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CedarWaxWing
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by CedarWaxWing »

Thank you for your reply.
nolesrule
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by nolesrule »

It's all in the rounding. Sometimes you win, sometimes you lose. You won't get the 3 cents back. You only get shares to 3 decimal places even though they show a fourth.
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CedarWaxWing
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by CedarWaxWing »

nolesrule wrote: Sat Jul 24, 2021 11:43 am It's all in the rounding. Sometimes you win, sometimes you lose. You won't get the 3 cents back. You only get shares to 3 decimal places even though they show a fourth.
I considered that...

Well... the cost to me was already rounded up to the higher expense, and I have no issues with that, and agree that the rounding error will balance out over the long haul.

The 3 cents was not part of that rounding up... it was 3 cents extra taken out of the Fed MMF than was used in the purchase even when you consider the rounding error.

If I had placed the order to buy 24999.97 dollars worth of that MF the transaction would have had the same number of shares purchased, and the same rounding error, to result in 24999.97 being removed from the MMF. Since the true costs are not known until the market closes, it is not feasible to place such an order, but it would seem that, after rounding error, only the funds used in the purchase would be removed.

I would have expected that the software would have only taken the amount of funds to make the purchase, after rounding up is considered.

I am guessing that Silk McCue has seen the same thing and saw it self correcting.. perhaps this happens a few days due due to the nature of reconciling procedures and quality controls in the software methodology.

Thanks.
Silk McCue
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by Silk McCue »

CedarWaxWing wrote: Sat Jul 24, 2021 12:40 pm ...

I am guessing that Silk McCue has seen the same thing and saw it self correcting.. perhaps this happens a few days due due to the nature of reconciling procedures and quality controls in the software methodology.

Thanks.
Please come back in a few days to let us know if this self resolves or not. It will be another important data point for us. Its only 3 cents but it is your 3 cents and not theirs.

Cheers
ruud
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by ruud »

CedarWaxWing wrote: Fri Jul 23, 2021 1:17 pm Rather than replace the funds into the MMF (0.03 cents), or remove that amount that would actually be used for the purchase costs, they simply reported a short term loss of 0.03 cents.
Did you mean 0.03 cents or 0.03 dollars (3 cents)?
Am I missing something or should they have put back into the MMF the 0.03 cents that was not used in the purchase?
As far as I know, at Vanguard, mutual fund transactions always happen for the requested dollar amount. In your case, you lost out on $0.03 due to rounding, but it could easily have been the case that you would have gained $0.03 (and you could imagine the outrage if you buy $1000 worth of a fund and they withdraw $1000.03?)
.
Silk McCue
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by Silk McCue »

ruud wrote: Sat Jul 24, 2021 1:00 pm
Did you mean 0.03 cents or 0.03 dollars (3 cents)?
Please don’t nitpick. It is completely clear from context that they mean 3 cents.

Cheers
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CedarWaxWing
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by CedarWaxWing »

I just spoke with a CPA I know... who audits banks.

I am told that the 3 cents is surely in a "clearing account" for now... and in a few days should be resolved by its being put back into the Fed MMF.

I will let it be known if and when that happens... This is largely just a matter of curiosity on my part.

Thanks.
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CedarWaxWing
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by CedarWaxWing »

[/quote]
As far as I know, at Vanguard, mutual fund transactions always happen for the requested dollar amount. In your case, you lost out on $0.03 due to rounding, but it could easily have been the case that you would have gained $0.03 (and you could imagine the outrage if you buy $1000 worth of a fund and they withdraw $1000.03?)
[/quote]

1. Yes, I meant 3 cents.

2. No... there is no way the mistake could happen in reverse, which would mean they took out too little money from the MMF to make the purchase and bought the shares at in incorrect price. By their rounding methodology the most one could lose or gain looks to be about 0.05th of a cent to me.

In this case they took out the ordered amount of funds, but the 3 cents more than the purchase cost could was not enough to buy the smallest fractional share allowed.

24,999,97. (24,999.9675 rounded up...) demonstrates the rounding error, which is why I included that info.

The "loss" of 3 cents is the difference between the funds taken out and the amount of funds used in the purchase... not a change in value of the purchase.

The share cost and shares purchased was appropriate.

Over the years I have noticed a small ST CG "loss" before at the same morning the purchase is made...and never a gain. I think I now know why, but never followed up on it enough to see the funds reconciles later...which I think is what will happen in this case.

I never looked closely enough to sort that out before, as I had a super busy work life and I (incorrectly) assumed that the "loss" had to do with a change in purchase price of the MF... but in light of the price being set at market closure, and the transaction occurring in the am at that price, I cannot see anyway that a gain or loss could be real.

I suspect if I had specified an exact number of shares to buy they would have taken out the exact amount to the nearest 0.05ths of a penny to fill the order, and this issue would not have occurred... for a MF rather than an ETF.
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Wiggums
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by Wiggums »

Silk McCue wrote: Fri Jul 23, 2021 2:14 pm If at least a 5 business days hasn’t passed since you executed the transaction you might need to wait for this to settle out. I’ve seen some odd penny stuff similar to this in a transaction a month or two ago.

Cheers
I had a similar experience and it was resolved over time.
"I started with nothing and I still have most of it left."
ruud
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by ruud »

Silk McCue wrote: Sat Jul 24, 2021 1:08 pm
ruud wrote: Sat Jul 24, 2021 1:00 pm Did you mean 0.03 cents or 0.03 dollars (3 cents)?
Please don’t nitpick. It is completely clear from context that they mean 3 cents.
It's a post about the minutiae of rounding purchase amounts.

In any case, to quote HEDGEFUNDIE, I'm done with this place.
.
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by grabiner »

CedarWaxWing wrote: Sat Jul 24, 2021 1:56 pm 2. No... there is no way the mistake could happen in reverse, which would mean they took out too little money from the MMF to make the purchase and bought the shares at in incorrect price. By their rounding methodology the most one could lose or gain looks to be about 0.05th of a cent to me.
Checking my own records, I found some rounding in my favor, including some roundings of more than one cent. I bought $15,000 worth of Total Stock Market on 3/27/08 at $31.94 per share, and received 469.631 shares which are worth $15000.01414. So it looks like they round to the nearest thousandth of a share, rather than rounding down.
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Silk McCue
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by Silk McCue »

ruud wrote: Sat Jul 24, 2021 2:58 pm
Silk McCue wrote: Sat Jul 24, 2021 1:08 pm
ruud wrote: Sat Jul 24, 2021 1:00 pm Did you mean 0.03 cents or 0.03 dollars (3 cents)?
Please don’t nitpick. It is completely clear from context that they mean 3 cents.
It's a post about the minutiae of rounding purchase amounts.

In any case, to quote HEDGEFUNDIE, I'm done with this place.
It would certainly be a shame if my gentle statement would cause you to leave a forum you have been a member of since 2007. What HEDGEFUNDIE dealt with doesn’t even compare.

Cheers
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CedarWaxWing
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by CedarWaxWing »

grabiner wrote: Sat Jul 24, 2021 3:13 pm
CedarWaxWing wrote: Sat Jul 24, 2021 1:56 pm 2. No... there is no way the mistake could happen in reverse, which would mean they took out too little money from the MMF to make the purchase and bought the shares at in incorrect price. By their rounding methodology the most one could lose or gain looks to be about 0.05th of a cent to me.
Checking my own records, I found some rounding in my favor, including some roundings of more than one cent. I bought $15,000 worth of Total Stock Market on 3/27/08 at $31.94 per share, and received 469.631 shares which are worth $15000.01414. So it looks like they round to the nearest thousandth of a share, rather than rounding down.
Interesting.

I imagine they must have some type of algorithm for ways to handle such things.
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by livesoft »

nolesrule wrote: Sat Jul 24, 2021 11:43 am It's all in the rounding. Sometimes you win, sometimes you lose. You won't get the 3 cents back. You only get shares to 3 decimal places even though they show a fourth.
The shown 4th decimal place so far has always been zero. That is, the supposed precision is fake. The true precision is only to 3 decimal places. The OP paid $25,000 for their shares. If they had another account with at least the same number of shares and sold 144.425 shares in the other account, then that other account would have gotten $24,999.97 for the shares.

Consider it a bid/ask spread if you want to.

I reported a 42% benefit to me in 2017: viewtopic.php?t=208793

Added: If one uses a spreadsheet, Quicken, or MS Money, then I think the easiest way to enter this transaction is to adjust the price paid per share to 173.100225 or so.
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nolesrule
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by nolesrule »

CedarWaxWing wrote: Sat Jul 24, 2021 1:56 pm I never looked closely enough to sort that out before, as I had a super busy work life and I (incorrectly) assumed that the "loss" had to do with a change in purchase price of the MF... but in light of the price being set at market closure, and the transaction occurring in the am at that price, I cannot see anyway that a gain or loss could be real.

I suspect if I had specified an exact number of shares to buy they would have taken out the exact amount to the nearest 0.05ths of a penny to fill the order, and this issue would not have occurred... for a MF rather than an ETF.
Like I said, sometimes you win, sometimes you lose. It will depend on the share price and the amount you purchase, because you can only buy mutual fund shares to 3 decimal places. The rounding gap is going to be the share price X one one thousandth, because that is the incremental purchase price. In your example, the purchase price was $173.10.

$173.10 X 0.001 = $0.1731

This is the full gap, so rounding would be somewhere in the middle, so you'd be +/- $0.08655.

So the rounding can cause up to a gain or loss of 8.66 cents on this particular mutual fund at that particular purchase price depending on how much money you chose to make the purchase with.

Vanguard only works in dollars and cents, so if you specified a a mutual fund purchase to 3 decimal places, it would round the purchase dollar amount to 2 decimal places. They don't take out fractions of a penny.
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CedarWaxWing
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by CedarWaxWing »

livesoft wrote: Sat Jul 24, 2021 7:09 pm
nolesrule wrote: Sat Jul 24, 2021 11:43 am It's all in the rounding. Sometimes you win, sometimes you lose. You won't get the 3 cents back. You only get shares to 3 decimal places even though they show a fourth.
The shown 4th decimal place so far has always been zero. That is, the supposed precision is fake. The true precision is only to 3 decimal places. The OP paid $25,000 for their shares. If they had another account with at least the same number of shares and sold 144.425 shares in the other account, then that other account would have gotten $24,999.97 for the shares.

Consider it a bid/ask spread if you want to.

I reported a 42% benefit to me in 2017: viewtopic.php?t=208793

Added: If one uses a spreadsheet, Quicken, or MS Money, then I think the easiest way to enter this transaction is to adjust the price paid per share to 173.100225 or so.
1. I don't think they want to have everyone paying a different price for the shares on the same morning ... however small the difference.
I suspect the funds will go back to the MMF they came from.

2. I reviewed your 42% benefit from 2017... reminds me of my similar experience as a sixth grader one summer. I had been pulling weeks all year, and save 50 dollars in a savings account, and when summer came I withdrew it as a 50 dollar bill just to see what such a bill looked like. The first day of summer I and a friend went to Baskin Robbins to buy a 2 scoop cone (15 cents for one, 25 for 2 in those days). My friend got his first, and paid his quarter, then I got mine, and handed the guy a 50 dollar bill. He looked at it, then at me liking my cone, and asked if I had anything smaller. I did not... so he gave me the cone. (This was ignorance on my part, not cunning.)

Minimum wage was $1.25 in those days.
nolesrule
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by nolesrule »

CedarWaxWing wrote: Sun Jul 25, 2021 5:02 pm
1. I don't think they want to have everyone paying a different price for the shares on the same morning ... however small the difference.
I suspect the funds will go back to the MMF they came from.
You can suspect whatever you want, but people here are telling you their real world experience.

Here's mine.

I just crunched the numbers on my mutual fund purchases in a taxable account (before I switched to ETFs). Here are the deltas between the purchase price and what I actually paid. (price per share x shares purchased - purchase total amount)

$0.002
-$0.027
-$0.024
-$0.016
$0.011
-$0.005
-$0.008
$0.023
$0.009
$0.017
$0.012
-$0.010
$0.023
$0.000
$0.000
$0.001
-$0.033
-$0.029

These were monthly purchases. In all, I'm out $0.054. Like I said, sometimes you win, sometimes you lose.

The money was not returned to the settlement fund nor anywhere else in my account when the rounding caused a loss on the purchase, nor was extra money taken from my account when the rounding caused a gain.
Silk McCue
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by Silk McCue »

nolesrule wrote: Mon Jul 26, 2021 7:32 am
CedarWaxWing wrote: Sun Jul 25, 2021 5:02 pm
1. I don't think they want to have everyone paying a different price for the shares on the same morning ... however small the difference.
I suspect the funds will go back to the MMF they came from.
You can suspect whatever you want, but people here are telling you their real world experience.

And a couple of us have experienced a different real world experience. How about we let the OP come back by the end of the week and let us know how this settles out. I have no skin in the game on the outcome. Just curious.

Cheers
nolesrule
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by nolesrule »

Silk McCue wrote: Mon Jul 26, 2021 8:04 am
nolesrule wrote: Mon Jul 26, 2021 7:32 am
CedarWaxWing wrote: Sun Jul 25, 2021 5:02 pm
1. I don't think they want to have everyone paying a different price for the shares on the same morning ... however small the difference.
I suspect the funds will go back to the MMF they came from.
You can suspect whatever you want, but people here are telling you their real world experience.

And a couple of us have experienced a different real world experience. How about we let the OP come back by the end of the week and let us know how this settles out. I have no skin in the game on the outcome. Just curious.

Cheers
Very well. It's not like this is the first or fifth thread on the subject.
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CedarWaxWing
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by CedarWaxWing »

Silk McCue wrote: Mon Jul 26, 2021 8:04 am
nolesrule wrote: Mon Jul 26, 2021 7:32 am
CedarWaxWing wrote: Sun Jul 25, 2021 5:02 pm
1. I don't think they want to have everyone paying a different price for the shares on the same morning ... however small the difference.
I suspect the funds will go back to the MMF they came from.
You can suspect whatever you want, but people here are telling you their real world experience.

And a couple of us have experienced a different real world experience. How about we let the OP come back by the end of the week and let us know how this settles out. I have no skin in the game on the outcome. Just curious.

Cheers
1. I will report back... perhaps Friday... .to give time for what happens or does not happen.
2. A bigger curiosity is ... why would people have differing experiences under what appear to be similar circumstances. That will likely not be discoverable.
Topic Author
CedarWaxWing
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by CedarWaxWing »

VG did not send the 3 cents back... I assume a rounding error.

Perhaps they do sell share numbers, and/or shares priced at a number to the nearest 0.0000, and but do not show that level of precision in the confirmation. Seems reasonable to me.
Silk McCue
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Re: Accouting question in regards to MF purchase from funds in MMF

Post by Silk McCue »

CedarWaxWing wrote: Fri Aug 06, 2021 11:35 am VG did not send the 3 cents back... I assume a rounding error.

Perhaps they do sell share numbers, and/or shares priced at a number to the nearest 0.0000, and but do not show that level of precision in the confirmation. Seems reasonable to me.
Thanks for coming back to share the result.

Cheers
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