Sunday, June 1, 2014

The Chump Button (Why your favorite financial calculator is missing something)

Recently, while I was clicking around and watching my meager investments shrivel in the wake of the recession, it occurred to me that certain features of Google Finance (or the lack thereof) annoy the heck out of me.  This came as a shock to me, but shouldn't have.

I have been using Google Finance (abbreviated hereafter as GF) since it was introduced in 2006, and the frustration has been building long enough for me to complain about it.

1.  The chart scale does not start at zero.  

This makes a $3.00 dip in a $300.00 stock look very much like a $3.00 dip in a $30.00 stock.  The little cartoon book How to Lie with Statistics has been around since 1954, and explains this sort of thing quite well.  I can't believe that nobody at Google (or Yahoo) has read it.

(Corrected) 2. The portfolio feature does not allow you to graph the aggregate performance
of your portfolio over time.

To Google's credit, they actually fixed this some time after I started writing this article.  (and put aside for months and months before picking it up again)

and now for the big one:

3.  There is no easy way to meaningfully adjust for inflation in Google Finance.

Investing without accounting for inflation is like trying to fly without considering the effects of gravity.

The Consumer Price Index tables are available (for free) on the web from the Bureau of Labor Statistics. It is a simple matter, using a spreadsheet or a web-based "inflation calculator", to adjust the value of a savings account, stock portfolio, or salary history for the cumulative effects of inflation. This is nothing new to anyone who slept through Econ 101 in college, and is plain-vanilla basic math.

So... why isn't there an "Adjust this for CPI" button prominently featured on Google Finance, and every other financial site on the web?  You can compare your stocks against the Dow or the S&P 500, to see if you are "beating the market" easily enough in GF -- why should it be hard to see if you are beating inflation?

This the "Chump Button" in the title of this rant -- as in "Click here to find out if you are a Chump" by getting nominal "gains" that are less than the rate of inflation, and then paying taxes on those gains.

Ideally, the Chump Button should also allow using an alternate means of inflation, such as the (more realistic, and more pessimistic) alternate CPI produced by John Williams of Shadow Government Statistics, or the Billion Prices Project.

Another way to calculate the gain or loss in the purchasing power of an investment is to calculate its value in terms of a common commodity. (ounces of gold, gallons of gas, barrels of oil, etc...).  The problem is that GF does not track commodity prices.  One can use GLD, SLV, USO, or one of the other commodity-based ETFs as a proxy for your commodity-of-choice -- but it would be much easier if you could compare against standard spot prices.

4.  How about an "After Taxes" button?
that will estimate how much you would net (after capital gains, IRA/401K penalties, income taxes, etc...)  if you cashed out an investment today. This one is a bit trickier (because different investment accounts are taxed according to different rules), but Google should have the horsepower to do it. 

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