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http://www.tddirectinvesting.co.uk/tools-research/research/most-popular-funds/november-2013/

Vanguard appears to be available through TD Direct?
http://www.tddirectinvesting.co.uk/tools-research/research/fund-selector-tool/

cheexy

Thanks...I have now opened an isa account using AJ Bell youinvest and chose the regular investment option. Does anyone know how much dividend has been paid so far? I am thinking of buying the Lifestrategy 80 inc option as against the acc option but i can't seem to find any details on dividend paid so far. Is there any significant merit to having the acc option instead?

bowlhead99

The vanguard lifestrategy funds are generalist global funds that are not deliberately skewed towards anything that pays a particularly high dividend or interest rate. The quoted historic yield of the VLS 80 is about 1.3%.

So, you'll get some dividend receipts every so often (I can't remember if it's quarterly or semiannually or annually- I just use the acc version so I never see them and, like you, I'm investing inside tax wrappers I never need to do any calculations).

Those receipts will sit in your account as cash and then you can just increase your next monthly payment amount to invest them back into the fund. So for example if you're buying £300 of the fund each month you can just change it to £325 one month or whatever and thereby 'spend' the spare cash leaving a few pounds behind in the account to pay your quarterly platform fees when they next fall due.

The 'merit' to using the acc option is that you don't receive any dividends as cash and so you don't need to invest them back into a fund. Of course, that way you don't have any cash being generated to pay platform fees, but it's very simple to just leave a few pounds in your account out of your direct debit one month or a few pennies every month.

If you were investing in multiple funds it might be handy to just receive all the divs as cash and then you could decide which fund you wanted to put the spare cash into, to help you re-balance between the different funds you held. But as you're just using one fund for the moment, that's irrelevant. And I'm assuming you don't want to actually take the dividends out of your ISA and spend them, so I'd just get the Acc version if I were you.

As an aside, you are right that TD Direct has a 'relatively low dealing charge' at £1.50 a month, but that's for buying shares in individual companies. You are buying a fund, and TD don't charge any transaction fees for buying funds. They do however charge an annual platform fee at 0.3% of your fund portfolio value while the platform fee on your account at AJB Youinvest is only 0.2%.

At some point the saving of the 0.1% per year at Youinvest is greater than the extra £1.50 a month. Obviously not in the first quarter when your average invested value is very low and 0.1% of it is virtually nothing, but you'll get there in the end. Meanwhile if you wanted, you could reduce how many dealing charges you incur by setting your desired 'regular investment' amount to be higher than the amount you're contributing by direct debit. For example if you set up regular investing into your preferred fund at £600, but only have £300 in the account from the direct debit, then the purchase won't execute that month due to insufficient funds. Then the next month when you have the £600, it will. So that way you'd only pay 6x £1.50 in the year because you're not buying as frequently. This would be partially offset by the fact that half of your money would be going in a month later than it could have been, missing out on a month of potential gain and dividend on that half of the money.

cheexy

Thanks so much bowlhead99, i have found your response very insightful.

collingbone614

I have a very newby-ish question here and this thread looks like a relevant place to ask it.

I am trying to understand the difference between the historic yield and the actual performance of the fund.

The Vanguard LifeStrategy 80% Equity (Acc) has a historic yield of 1.28% according to Hargreaves Lansdown.

However the performance for the most recent discrete calendar year is showing as 10.43%. For the period of 30/08/13 to 30/08/14.

If someone had money invested during that period, would they have gained 1.28% or would they have gained 10.43%?

I've tried using the HL website to understand the difference between these two, but I'm not getting very far.

bowlhead99

You have two things going on which contribute to your 'total return'.

Firstly, as companies make profits every year they will give some of those profits to the shareholders in the form of dividends, while keeping some back in the business for contingencies and to run the business. So an owner of the business - whether that's you as a direct shareholder, or a Vanguard Lifestrategy fund who invest larger amounts on behalf of lots of underlying investors - will receive a steady stream of cash distributions.

These distributions as a percentage of the total share price of the companies will fluctuate, either because their profits fluctuate, or their profits are similar but the amount they want to pay out instead of holding back for spending on next year's machinery and advertising has changed, or simply because the share price has moved up or down based on people's expectations for the company's relative success have changed. The ratio of what they most recently paid out as dividends compared to their share price, is the dividend yield.

So the Vanguard fund receives these cashflows from the companies (say 5% from Tesco and 3% from someone else and 0% from Amazon - all companies choose a different amount to pay out) and then the fund pays its ongoing running costs and gives the spare cash to you the investor in the Vanguard fund. The blended average 'yield' from all the 5000 companies that VLS invests in might be 1.6% and maybe that means they can afford to pay 1.3% onto their own investors after management fees /expense etc. Sometimes the individual companies like Tesco will cut their dividends and others will increase theirs but overall the 1.3% is what they fund was able to pay onwards to you the investor, as a percentage of its own share price.

So, that 'yield' is the 1.28% you saw quoted.

Then secondly the other way that an investor makes money from a company is by the share certificates they hold becoming more valuable or less valuable as demand for them changes.

If I run a company successfully and am making an exciting product and growing my market share and the total market is growing anyway and my costs of running the business are falling as a percentage of all my revenues, I am making lots of profits for my investors now and likely to make lots more profits in the future. The assets I have in the company (cash and equipment and factories and stores etc) will increase. A single share in my company, representing an ownership percent (or a billionth of a percent, depending on how many shares are in issue) will become more desirable year on year as the company improves, whether or not the dividend yield being paid out is 0% or 1.28% or 5%. If I can afford to pay out more dividends and I do so, and the market agrees I should be paying out that money rather than growing my business with it, then that will make my shares more desirable too.

Even if I'm not growing profits, my shares might still be relatively more desirable than the company down the road compared to last week, causing demand to increase and the price to go up because there are only so many shares to go around. So, when as an investor, you own a share, capital growth (or loss) is the other part of your total return.

So the Vanguard fund might invest £100 in Amazon.com and £100 in Tesco. Amazon pays out no dividends while Tesco chooses to cut its dividends from previous years and only pay £3 of dividends in the year. By the end of the year, the Amazon shares become worth £147 as they rise due to market demand for what they're doing, and the Tesco ones become worth £70 as they fall because people don't like the loss of market share and profits and a dividend cut. At the end of the year it has £217 of investments in companies and £3 of cash.

The fund can now pay out the £3 to its investors. As an investor you would think, hey great, my shares in the fund were worth £200 and now they're £217, that's great, and I've just received £3 in cash. So my 'total return' is 17+3 = 20 on a £200 investment, or a "10% total return".

Separately I can calculate that I received £3 dividends on a share price that moved between 200 and £217. That £3 represents a yield of 1.38% of the year end share price (although it's a yield of 1.5% on my initial £200 cost, or alternatively something like 1.43% on the average share price over the year).

So in your example somebody would have gained 10.4% of value by investing into the VLS a year ago. If they bought the 'INC' version they would have had the share price go up by about 9.1% and received about 1.3% of dividends in their hand. If you are using the HL charts there is a toggle button to decide whether you want to see just the 9% share price change or the total return including the dividend. Of course if they bought the 'ACC' version that you were looking at, they would have not physically got the dividends, so the share price wouldn't have fallen when the fund paid those assets out, and they would have just seen the overall price go up by 10.4% over the year. So you don't really see it on the chart with the ACC version.

collingbone614

Thank you very much for that detailed explanation, bowlhead. Your responses are always very informative and interesting to read.

My main interest here is in accumulation trackers, so the total performance figure is the one I will be paying particular attention to, then.

rabc77

Folks,

Another questions, I have someone who was is on a pension that is basically awful owing to job history, although worked all their life the businesses screwed them a bit etc. As part of their pension thet took a lump sum and I think they may benefit from an income fund to both grow their money and give them an income. Any suggestions or if you need more info please let me know...