How should I record the changing value of an investment in accounting software?

Question

I have the following (simplistic) structure set up in GnuCash, but this should apply to other software too:

Assets
  Bank account
  Pension
Income
  Salary
  Interest

Every month, my salary is split between my bank account and my pension. Both assets go up in value over time, but the pension can also obviously go down, as it's represented as various shares.

It is simple to record the changing value of my bank account; every time I receive an interest payment (of a few pennies!), I add it to the total. But how should I represent the changing value of my pension? Should I add "interest" every year, or periodically at another time? Or should I not bother and just allow the account to become more and more out of line with the actual value of the fund, and adjust when I withdraw from it?

Answer 1

You'll have a certain number of shares of each fund in your pension. You purchase a certain number of shares with the "pension" portion of your paycheck. This will be different each time because the share price fluctuates.

To see the changing value of your pension, you update the price(s) of your fund(s). How often you do this is up to you, though if it's a publicly traded asset then you may be able to pull quotes automatically and update the price that way.

Answer 2

GnuCash allows you to keep accounts in various currencies (and as I recall there is even built-in support for securities). The easiest option is probably to make subaccounts for each company that you hold shares in, with each share being defined as a "currency" of sorts. Then, just update the rates regularly. The "pension" account will then show the total, just like the "assets" account shows the total pension + bank account today.

So, you'll have one account for NYSE:AAPL, one for NYSE:FB, and so on, all grouped under the "pension" account.

Your account tree would then look something like this:

----Assets
--------Bank account
--------Pension
------------Cash
------------Fund A
------------Fund B
------------...

Answer 3

Usually accounting systems track transactions that have occurred, between you and the outside world.

The market value of your pension is a fluid reality, and it is not based on a transaction that has occurred. Since you have not tapped in to your pension fund yet, the market value is not really validated by any transactions.

For those reasons, many would leave market value out of their accounting system.

However companies and organizations do track market value, in various specific ways. Basically it's an additional level of record keeping. You would use two accounts each time, whether the market has increased the value or decreased the value.

Increase in value:

Pension Market Value XX (increase in asset, recorded separately) Market Value Increase XX (increase on income statement, non-cash)

Decrease in value:

Pension Market Value XX (decrease in asset, recorded separately) Market Value Increase XX (decrease on income statement, non-cash)

If you do these transactions (monthly, quarterly or annually for instance) then over the years you would see how your pension market value fluctuates.