the Capital gains on investments on P/L shows base currency only. it would be good to show the investment transaction currency eg. USD, Euro etc.
You are correct, and Investments tab should eventually be mature enough to handle splitting up of capital gains/losses from unrealized exchange differences.
This is because a combination between a capital gains/loss and an opposite unrealized exchange difference can swing either way. So it is essential to be able to split them out in order to tell what is really happening with investments and make informed decisions.
This is the only logical extension to this idea:
And since that has been closed, I am going to place this idea, even it was still premature.
Actually my first implementation was working like that. But it wasn’t appreciated because it makes everything more complicated.
But then again, if someone wants it that way, then investments would be tracked in selected currency. And if someone doesn’t want it, they should keep investments in base currency even if they are traded in foreign currency.
I’m interested to know why this splitting is important. It does seem make things more complex for little gain. Thoughts?
Take this for example, suppose John from the USA invests $1100 or £1000 in the stock of XYZ. Now suppose XYZ is not doing very well and their shares lose 5% of their value, however, the pound appreciates to $1.3.
Looking at the investment as whole, the investment is now worth $1170 which is a gain of $70 over the initial investment, which is good on the surface, when in fact it actually lost £100 and the foreign currency position gained $300 which in effect is a $130 loss since had the investment been in a pound account, the investment value would have been $1300.
The missed investment opportunity for not being able to properly split the change in investment value is keeping a poorly performing stock and forgoing investment in say bonds, British bonds.
It could also work the other way.
I’m removing this from ideas because I came to conclusion investment gains (losses) are always investment gains (losses) regardless of forex fluctation.
The currency investment is being traded in doesn’t change the nature of investment. If your base currency is EUR and you purchase shares on NASDAQ in USD. You are disposing USD to purchase an investment. You no longer have USD. You just have an investment.
Even if investment is liquid and can be easily converted back to USD, it doesn’t mean you are making currency gains / losses on USD because you do not have any USD.
Yeah, but practically it’s all connected. If you have a poorly performing stock, it needs to be reflected in unrealized losses on investment. Imagine you purchase shares in a country with very high inflation. Your poorly performing stock will appreciate by 30% so it looks like you are making gains while the currency has lost 50% of its value. So the net effect is that your poorly performing stock is down 20% relative to your base currency. This is what’s important. Single figure that tells you whether you made the right or wrong decision relative to your base currency. Making it look like you made 30% gains relative to foreign currency while the losses relative to your base currency are tucked away in unrealized currency loss account would make your financial statements misleading.
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