Value of one Unit on Valuation (NAV) Report
How does the cash account balance affect the Value of one unit on the Valuation Report? For instance, if our NAV is worth $15.00 per unit on June 1st and we have $500.00 in our cash account, does a large infusion of contributions on June 2nd, let's say $1000.00, make a significant difference to the value of one unit? Thanks for your help in clarifying this for our club.
Steve
Foster
Treasurer-Circle of Friends Investment Club
It has no affect. The person infusing cash is buying units at NAV.
Joe Farrell
Joe Farrell
How does the cash account balance affect the Value of one unit on the Valuation Report? For instance, if our NAV is worth $15.00 per unit on June 1st and we have $500.00 in our cash account, does a large infusion of contributions on June 2nd, let's say $1000.00, make a significant difference to the value of one unit? Thanks for your help in clarifying this for our club.Steve FosterTreasurer-Circle of Friends Investment Club
Dear Steve,
Joe is correct. If a cash increase happens because of member payments being deposited, there will be no change in unit value. There will just be more of them.
Joe is correct. If a cash increase happens because of member payments being deposited, there will be no change in unit value. There will just be more of them.
There can be other reasons where a cash increase would impact unit value however.
Laurie Frederiksen
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Here is an example and I am going to change the numbers a little so the math is easy.
Let's say you have a club that is worth $20,000 and there are 1000 units. Thus the NAV is $20. Let's also say that in that $20,000 you currently have a cash balance of $500. Now someone deposits $1000. They buy 50 units with that $1000 at the current NAV of $20. So there are now 1050 units that are still worth $20 and the over all club is now worth $21,000 and the current cash balance is $1500 so you are ready to go buy some more stock.
Hope that helps,
Paul
On Jun 12, 2014, at 7:16 AM, Joe Farrell wrote:
It has no affect. The person infusing cash is buying units at NAV.
Joe FarrellHow does the cash account balance affect the Value of one unit on the Valuation Report? For instance, if our NAV is worth $15.00 per unit on June 1st and we have $500.00 in our cash account, does a large infusion of contributions on June 2nd, let's say $1000.00, make a significant difference to the value of one unit? Thanks for your help in clarifying this for our club.Steve FosterTreasurer-Circle of Friends Investment Club
Thanks for explaination.
What happens when another person(not depositor in question) wants to withdraw say $2000 from club next day. Now he will be paid $1500 from cash and $500 from liquidation of stocks. What will be club's NAV after? If it goes below $20/unit, the new depositor will be at loss without his fault.
Also if there are gains on that liquidated stocks, club may have to pay taxes and those will be shared proportionatly to capital contribution. Thus new depositor will pay taxes even though he deposited $1000 and made no stock purchases with his fresh capital but someone else cashed out. ...I hope I am wrong with this assumption. Please correct me....
-----Original Message-----
From: madispa@gmail.com
Sent: Thu, 12 Jun 2014 08:56:00 -0400
To: club_cafe@bivio.com
Subject: Re: [club_cafe] Value of one Unit on Valuation (NAV) ReportHere is an example and I am going to change the numbers a little so the math is easy.Let's say you have a club that is worth $20,000 and there are 1000 units. Thus the NAV is $20. Let's also say that in that $20,000 you currently have a cash balance of $500. Now someone deposits $1000. They buy 50 units with that $1000 at the current NAV of $20. So there are now 1050 units that are still worth $20 and the over all club is now worth $21,000 and the current cash balance is $1500 so you are ready to go buy some more stock.Hope that helps,PaulOn Jun 12, 2014, at 7:16 AM, Joe Farrell wrote:It has no affect. The person infusing cash is buying units at NAV.
Joe FarrellHow does the cash account balance affect the Value of one unit on the Valuation Report? For instance, if our NAV is worth $15.00 per unit on June 1st and we have $500.00 in our cash account, does a large infusion of contributions on June 2nd, let's say $1000.00, make a significant difference to the value of one unit? Thanks for your help in clarifying this for our club.Steve FosterTreasurer-Circle of Friends Investment Club
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The new member didn't buy shares of stock, he purchased units of ownership in the club. If the club then recognizes a gain by selling stock to pay a withdrawing member, the new member will owe taxes on some of that gain. This may seem unfair, but it eventually comes out in the wash when the new member withdraws himself. It can also be avoided if the withdrawal is a full withdrawal.
In a full withdrawal, if instead of paying cash, the club transfers the shares of the stock with the gain to the withdrawing member, both the club and the withdrawing member can postpone recognition (being taxed on) the gains. The withdrawing member postpones recognizing his gain in the club until he sells the shares and the remaining club members postpone recognizing (being taxed on) the gain until they withdraw from the club themselves.FYI, each club in bivio comes with a "demo club" that you can use to run scenarios like this one for yourself if you'd like to see exactly what happens with actual numbers.
You can get to it using the little drop down menu symbol next to your clubID in the upper right side of the screen.
Laurie Frederiksen
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On Thu, Jun 12, 2014 at 10:15 AM, raka maka wrote:
Thanks for explaination.What happens when another person(not depositor in question) wants to withdraw say $2000 from club next day. Now he will be paid $1500 from cash and $500 from liquidation of stocks. What will be club's NAV after? If it goes below $20/unit, the new depositor will be at loss without his fault.Also if there are gains on that liquidated stocks, club may have to pay taxes and those will be shared proportionatly to capital contribution. Thus new depositor will pay taxes even though he deposited $1000 and made no stock purchases with his fresh capital but someone else cashed out. ...I hope I am wrong with this assumption. Please correct me....-----Original Message-----
From: madispa@gmail.com
Sent: Thu, 12 Jun 2014 08:56:00 -0400
To: club_cafe@bivio.com
Subject: Re: [club_cafe] Value of one Unit on Valuation (NAV) Report
Here is an example and I am going to change the numbers a little so the math is easy.Let's say you have a club that is worth $20,000 and there are 1000 units. Thus the NAV is $20. Let's also say that in that $20,000 you currently have a cash balance of $500. Now someone deposits $1000. They buy 50 units with that $1000 at the current NAV of $20. So there are now 1050 units that are still worth $20 and the over all club is now worth $21,000 and the current cash balance is $1500 so you are ready to go buy some more stock.Hope that helps,PaulOn Jun 12, 2014, at 7:16 AM, Joe Farrell wrote:It has no affect. The person infusing cash is buying units at NAV.
Joe FarrellHow does the cash account balance affect the Value of one unit on the Valuation Report? For instance, if our NAV is worth $15.00 per unit on June 1st and we have $500.00 in our cash account, does a large infusion of contributions on June 2nd, let's say $1000.00, make a significant difference to the value of one unit? Thanks for your help in clarifying this for our club.
Steve FosterTreasurer-Circle of Friends Investment Club
Free 3D Marine Aquarium Screensaver
Watch dolphins, sharks & orcas on your desktop! Check it out at www.inbox.com/marineaquarium
> For instance, if our NAV is worth $15.00 per unit on June 1st and we have $500.00 in our cash account, does a large infusion of contributions on June 2nd, let's say $1000.00, make a significant difference to the value of one unit? Thanks for your help in clarifying this for our club. <
What hasn't been explained yet is *why* unit value doesn't
change when a member invests cash in an investment club.
Perhaps the following will help with understanding that.
Remember that UnitValue = TotalAssetValue / TotalUnits.
On June 1st, lets say that the club assets total $1,500 and
there are 100 total units owned by the members. What is the
unit value? It's 1,500 / 100 = $15.
On June 2nd a member invests $1,000 cash in the club (*big*
cash infusion for this club). In exchange, the club issues
66.667 newly created units to that member (66.667 = 1,000 /
15; $1,000 worth of units purchased at $15 per unit).
TotalAssetValue is now $2,500 (assuming no change in stock
prices) and TotalUnits is now 166.667. What is the new unit
value? It's 2,500 / 166.667 = $15 (unchanged!).
-Jim Thomas
What hasn't been explained yet is *why* unit value doesn't
change when a member invests cash in an investment club.
Perhaps the following will help with understanding that.
Remember that UnitValue = TotalAssetValue / TotalUnits.
On June 1st, lets say that the club assets total $1,500 and
there are 100 total units owned by the members. What is the
unit value? It's 1,500 / 100 = $15.
On June 2nd a member invests $1,000 cash in the club (*big*
cash infusion for this club). In exchange, the club issues
66.667 newly created units to that member (66.667 = 1,000 /
15; $1,000 worth of units purchased at $15 per unit).
TotalAssetValue is now $2,500 (assuming no change in stock
prices) and TotalUnits is now 166.667. What is the new unit
value? It's 2,500 / 166.667 = $15 (unchanged!).
-Jim Thomas
> What happens when another person wants to withdraw say $2000 from club next day. Now he will be paid $1500 from cash and $500 from liquidation of stocks. What will be club's NAV after? <
UnitValue = TotalAssetValue / TotalUnits.
Before withdrawal: $2,500 total assets, 166.667 total
units.
Unit value is $15 (2,500 / 166.667).
Withdrawal of $2,000 (133.333 units at $15 per unit).
After withdrawal: $500 total assets, 33.333 total units.
Unit value remains unchanged at $15 (500 / 33.333).
Whenever a club sells stock (for whatever reason) there will
be a realized gain or loss and, hence, there will be tax
consequences. However, the club (partnership) does not pay
taxes since it is a "pass-through" entity in the eyes of the
IRS. Any capital gain or loss from a stock sale gets
allocated to all members at the time of the sale, in
proportion to ownership. To what degree that results in
taxation for any particular member depends on the details of
that member's individual personal tax return.
-Jim Thomas
UnitValue = TotalAssetValue / TotalUnits.
Before withdrawal: $2,500 total assets, 166.667 total
units.
Unit value is $15 (2,500 / 166.667).
Withdrawal of $2,000 (133.333 units at $15 per unit).
After withdrawal: $500 total assets, 33.333 total units.
Unit value remains unchanged at $15 (500 / 33.333).
Whenever a club sells stock (for whatever reason) there will
be a realized gain or loss and, hence, there will be tax
consequences. However, the club (partnership) does not pay
taxes since it is a "pass-through" entity in the eyes of the
IRS. Any capital gain or loss from a stock sale gets
allocated to all members at the time of the sale, in
proportion to ownership. To what degree that results in
taxation for any particular member depends on the details of
that member's individual personal tax return.
-Jim Thomas
Thanks to all who responded to my question. I understand it now and will be able to explain it to our club members.
On Thursday, June 12, 2014 9:04 AM, James Thomas <jimt075@comcast.net> wrote:
> What happens when another person wants to withdraw say $2000 from club next day. Now he will be paid $1500 from
cash and $500 from liquidation of stocks. What will be club's NAV after? <
UnitValue = TotalAssetValue / TotalUnits.
Before withdrawal: $2,500 total assets, 166.667 total
units.
Unit value is $15 (2,500 / 166.667).
Withdrawal of $2,000 (133.333 units at $15 per unit).
After withdrawal: $500 total assets, 33.333 total units.
Unit value remains unchanged at $15 (500 / 33.333).
Whenever a club sells stock (for whatever reason) there will
be a realized gain or loss and, hence, there will be tax
consequences. However, the club (partnership) does not pay
taxes since it is a "pass-through" entity in the eyes of the
IRS. Any capital gain or loss from a stock sale gets
allocated to all members at the time of the sale, in
proportion to ownership. To what degree that results in
taxation for any particular member depends on the details of
that member's individual personal tax return.
-Jim Thomas
UnitValue = TotalAssetValue / TotalUnits.
Before withdrawal: $2,500 total assets, 166.667 total
units.
Unit value is $15 (2,500 / 166.667).
Withdrawal of $2,000 (133.333 units at $15 per unit).
After withdrawal: $500 total assets, 33.333 total units.
Unit value remains unchanged at $15 (500 / 33.333).
Whenever a club sells stock (for whatever reason) there will
be a realized gain or loss and, hence, there will be tax
consequences. However, the club (partnership) does not pay
taxes since it is a "pass-through" entity in the eyes of the
IRS. Any capital gain or loss from a stock sale gets
allocated to all members at the time of the sale, in
proportion to ownership. To what degree that results in
taxation for any particular member depends on the details of
that member's individual personal tax return.
-Jim Thomas