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  • FIRST POST
    • pardal51
    • By pardal51 16th Jun 17, 3:27 PM
    • 424Posts
    • 176Thanks
    pardal51
    Vanguard VLS funds
    • #1
    • 16th Jun 17, 3:27 PM
    Vanguard VLS funds 16th Jun 17 at 3:27 PM
    hi all,

    trying to understand how the Vanguard LS 100 ACC works.

    Let's say that today unit costs £100 and you buy £10,000 worth which equates to 1,000 units

    After 20 years the unit is priced at £90. Does it mean that your investment will be worth £9,000? Where do we "gain" for investing in the long-term?

    I am adding VLS100 to my basket (also including VLS60 and VLS80)...Looking at 10-15years minimum investment period before thinking of touching it...

    AM I missing anything here?

Page 1
    • Linton
    • By Linton 16th Jun 17, 3:41 PM
    • 8,098 Posts
    • 7,920 Thanks
    Linton
    • #2
    • 16th Jun 17, 3:41 PM
    • #2
    • 16th Jun 17, 3:41 PM
    You arent missing anything . You gain because after 20 years the price is very likely to be several times higher than the price now. One reason is that apart from capital growth of the underlying investments, all dividends are reinvested into the core fund. So you get a compound interest type return.

    There is no point in holding VLS100 and VLS80 and VLS60 as they are all invested in the same underlying shares and bonds, just in different proportions.
    • dunstonh
    • By dunstonh 16th Jun 17, 4:01 PM
    • 88,858 Posts
    • 54,197 Thanks
    dunstonh
    • #3
    • 16th Jun 17, 4:01 PM
    • #3
    • 16th Jun 17, 4:01 PM
    I am adding VLS100 to my basket (also including VLS60 and VLS80).
    That is the only thing that is an issue here. Mixing and matching VLS versions is pointless. The same underlying assets are used with each version. So, you are just breaking the asset allocations with your management decisions.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from a Financial Adviser local to you.
    • ian-d
    • By ian-d 16th Jun 17, 4:06 PM
    • 367 Posts
    • 87 Thanks
    ian-d
    • #4
    • 16th Jun 17, 4:06 PM
    • #4
    • 16th Jun 17, 4:06 PM
    That is the only thing that is an issue here. Mixing and matching VLS versions is pointless. The same underlying assets are used with each version. So, you are just breaking the asset allocations with your management decisions.
    Originally posted by dunstonh
    I suppose that depends if there are differing timescales and risks though? I have VLS80 on money I need sooner (S&SISA) and VLS100 on money for the very long term (SIPP).
    • eskbanker
    • By eskbanker 16th Jun 17, 4:10 PM
    • 5,332 Posts
    • 5,083 Thanks
    eskbanker
    • #5
    • 16th Jun 17, 4:10 PM
    • #5
    • 16th Jun 17, 4:10 PM
    Let's say that today unit costs £100 and you buy £10,000 worth which equates to 1,000 units

    After 20 years the unit is priced at £90. Does it mean that your investment will be worth £9,000?

    <snip>

    AM I missing anything here?
    Originally posted by pardal51
    Yes, you're missing the fact that you somehow bought 1,000 units for the price of 100, so your £10,000 investment would have jumped to £90,000 - happy days!
    • bostonerimus
    • By bostonerimus 16th Jun 17, 5:10 PM
    • 663 Posts
    • 346 Thanks
    bostonerimus
    • #6
    • 16th Jun 17, 5:10 PM
    • #6
    • 16th Jun 17, 5:10 PM
    Your money can grow in two ways......capital appreciation because the stock price goes up and also reinvestment of dividends to buy more shares....that would be an Accumulation fund.

    You might buy 50% VLS100 and 50% VLS80 is you wanted to synthesize a VLS90, but there really isn't much point in doing that IMHO, but your point about using less volatile investments in accounts that are ear marked for the short term is a good one.
    Last edited by bostonerimus; 16-06-2017 at 5:13 PM.
    Misanthrope in search of similar for mutual loathing
    • TrustyOven
    • By TrustyOven 16th Jun 17, 6:26 PM
    • 581 Posts
    • 627 Thanks
    TrustyOven
    • #7
    • 16th Jun 17, 6:26 PM
    • #7
    • 16th Jun 17, 6:26 PM
    Your money can grow in two ways......capital appreciation because the stock price goes up and also reinvestment of dividends to buy more shares....that would be an Accumulation fund.
    Originally posted by bostonerimus
    That would be an Income fund with the dividends manually reinvested

    The accumulation fund would not see you buy more shares in the fund, instead your share would increase in value, thus making it look like capital appreciation.
    Goals
    Save £12k in 2017 #016 (£4212.06 / £10k) (42.12%)
    Save £12k in 2016 #041 (£4558.28 / £6k) (75.97%)
    Save £12k in 2014 #192 (£4115.62 / £5k) (82.3%)
    • bostonerimus
    • By bostonerimus 17th Jun 17, 3:07 AM
    • 663 Posts
    • 346 Thanks
    bostonerimus
    • #8
    • 17th Jun 17, 3:07 AM
    • #8
    • 17th Jun 17, 3:07 AM
    That would be an Income fund with the dividends manually reinvested

    The accumulation fund would not see you buy more shares in the fund, instead your share would increase in value, thus making it look like capital appreciation.
    Originally posted by TrustyOven
    Thanks, I hadn't realized that. In the US there's no Income or Accumulation versions of funds you just choose what to do with the dividends.....either reinvest or dump them to a money market fund if you need them as income.
    Misanthrope in search of similar for mutual loathing
    • bowlhead99
    • By bowlhead99 17th Jun 17, 8:28 AM
    • 6,609 Posts
    • 11,692 Thanks
    bowlhead99
    • #9
    • 17th Jun 17, 8:28 AM
    • #9
    • 17th Jun 17, 8:28 AM
    Over here, you pick an Income version if you want the income paid out to the cash part of your account (which you could then choose to spend on buying more units of that fund, or another fund, or withdraw it to your bank, or just leave it there a while) ; when the fund goes ex-div the unit price falls and you'll get the cash.

    With the Acc version the income collected from the portfolio of underlying companies is just reinvested back in those underlying companies as they never send you the dividends and the unit price doesn't drop. However, they still track what dividends they would have sent you if you'd opted to receive the divs in cash, so you can pay your taxes on it, because you've still earned it (though not relevant if you're using an ISA or pension wrapper).
    • ALostMachine
    • By ALostMachine 17th Jun 17, 12:05 PM
    • 11 Posts
    • 4 Thanks
    ALostMachine
    I am adding VLS100 to my basket (also including VLS60 and VLS80)...
    Originally posted by pardal51
    What is the reason for buying all three?
    • badger09
    • By badger09 17th Jun 17, 12:14 PM
    • 5,112 Posts
    • 4,325 Thanks
    badger09
    What is the reason for buying all three?
    Originally posted by ALostMachine
    Inexperienced investor?
    • pinkllama
    • By pinkllama 17th Jun 17, 1:20 PM
    • 90 Posts
    • 37 Thanks
    pinkllama
    Different saving timeframes?
    I hold Lifestrategy 40, Lifestrategy 80 and VWRL.
    Saving for travelling in 3-4 years.
    Paying off a mortgage in 10 years.
    Pension savings.
    • AnotherJoe
    • By AnotherJoe 17th Jun 17, 1:24 PM
    • 7,062 Posts
    • 7,537 Thanks
    AnotherJoe
    Different saving timeframes?
    I hold Lifestrategy 40, Lifestrategy 80 and VWRL.
    Saving for travelling in 3-4 years.
    Paying off a mortgage in 10 years.
    Pension savings.
    Originally posted by pinkllama
    If I was saving for anything in 3-4 years I wouldn't be using funds, I'd be putting regular savings in higher interest regular savings accounts.
    • bostonerimus
    • By bostonerimus 17th Jun 17, 2:10 PM
    • 663 Posts
    • 346 Thanks
    bostonerimus
    Over here, you pick an Income version if you want the income paid out to the cash part of your account (which you could then choose to spend on buying more units of that fund, or another fund, or withdraw it to your bank, or just leave it there a while) ; when the fund goes ex-div the unit price falls and you'll get the cash.

    With the Acc version the income collected from the portfolio of underlying companies is just reinvested back in those underlying companies as they never send you the dividends and the unit price doesn't drop. However, they still track what dividends they would have sent you if you'd opted to receive the divs in cash, so you can pay your taxes on it, because you've still earned it (though not relevant if you're using an ISA or pension wrapper).
    Originally posted by bowlhead99
    In the US the closest thing to an ISA is the ROTH IRA, but you can only invest $6500 a year max and there are withdrawal restrictions as it's targeted at retirement. So if you want to invest non-retirement money you have to deal with tax. Funds distribute dividends and may times also some capital gains from trading. The investor chooses whether to take the distributions or reinvest. At the end of the year US tax payers have the annual trauma of doing their taxes and the fund company sends forms with the taxable amounts so the investor cane declare them to the tax authorities. If you can keep your total income low enough you can avoid any tax on your capital gains and dividends....and that's what I do.
    Misanthrope in search of similar for mutual loathing
    • pardal51
    • By pardal51 25th Jun 17, 3:23 PM
    • 424 Posts
    • 176 Thanks
    pardal51
    Thank you all for the replies...

    Yes, I am a total noob to investments really. The reason behind was to weigh the funds and and have an average between the three, i.e., "VLS 85"...

    Answering my own question:
    It seems that the retained dividends purchases more shares and therefore increase the value of the fund unit.

    Therefore in theory I hope that after 15+years it will have beaten inflation and returned something....

    • jimjames
    • By jimjames 25th Jun 17, 3:51 PM
    • 11,947 Posts
    • 10,358 Thanks
    jimjames
    Answering my own question:
    It seems that the retained dividends purchases more shares and therefore increase the value of the fund unit. .
    Originally posted by pardal51
    That's not the full picture though. Why did you think the unit price would have dropped from £100 to £90? (even if the calculation on units was wrong)

    Over time business should be making more money so the unit price should have increased over 20 years not dropped
    Remember the saying: if it looks too good to be true it almost certainly is.
    • Audaxer
    • By Audaxer 25th Jun 17, 6:11 PM
    • 322 Posts
    • 105 Thanks
    Audaxer
    The accumulation fund would not see you buy more shares in the fund, instead your share would increase in value, thus making it look like capital appreciation.
    Originally posted by TrustyOven
    I think what actually happens is that at ex-div date the Inc fund would drop in value by the dividend percentage that will be taken out of the fund and set aside to be paid out on the dividend date, whereas value of the Acc fund will be unaffected and continue to grow. I was advised that when I previously raised a similar query.
    • TrustyOven
    • By TrustyOven 25th Jun 17, 7:54 PM
    • 581 Posts
    • 627 Thanks
    TrustyOven
    I think what actually happens is that at ex-div date the Inc fund would drop in value by the dividend percentage that will be taken out of the fund and set aside to be paid out on the dividend date, whereas value of the Acc fund will be unaffected and continue to grow. I was advised that when I previously raised a similar query.
    Originally posted by Audaxer
    Could you use that to your advantage by making purchases just after the ex-div date to get cheaper units?
    Goals
    Save £12k in 2017 #016 (£4212.06 / £10k) (42.12%)
    Save £12k in 2016 #041 (£4558.28 / £6k) (75.97%)
    Save £12k in 2014 #192 (£4115.62 / £5k) (82.3%)
    • Audaxer
    • By Audaxer 25th Jun 17, 8:16 PM
    • 322 Posts
    • 105 Thanks
    Audaxer
    Could you use that to your advantage by making purchases just after the ex-div date to get cheaper units?
    Originally posted by TrustyOven
    You would probably get cheaper units on the Inc fund, but you would just miss out on the dividend that you would have got in you had bought them before the ex-div date, so I don't really think you gain any advantage. It would make no differences for purchases of the Acc fund.
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