180K Investment

atush

jdw2000 wrote: »

What do you love about them? And what do you not like about them?

Nothing i dont like about them.

But i have been investing in them for over 2 decades. And they were much better value back then charges wise than Unit trusts (oeics now). I liked that their low charges were that they didnt pay commission (back in the days when commission was paid)

Plus i like the fact that many are more than 100 years old, and I love the fact that some have paid stable and increasing dividends annually for decades.

I like that you can get generals, income ones, growth ones, income and growth ones, private equity ones, emerging markets ones, asian ones etc.

I loved that they were very cheap to buy monthly with small amounts for when you are starting out saving and cant afford hundreds or thousands per month. I have one i started with just 20/month.

Now some have imposed an annual charge, which is still cheap if your investment is worth more than a pittance (i think around 36/yr).

I like the fact that I jut pay in every month, every year and am usually very happy when i open my annual statement, and am never upset (as if prices have gone down there is usually income to help make up for that). I like the fact that these are a pay in and forget about it investment (the monthly ones, the general ones). Nothting too spicy, yet with pound cost averaging i dont have to look at them too often.

bigadaj

jdw2000 wrote: »

With regards dividends/income, does £5K per annum for each £100K invested sound like a decent ballpark figure? (For VLS, let's say).

Probably about right for total returns, dividend income would be around half of that.

coastline

jdw2000 wrote: »

With regards dividends/income, does £5K per annum for each £100K invested sound like a decent ballpark figure? (For VLS, let's say).

http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/v/vanguard-lifestrategy-100-equity-income

http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/v/vanguard-lifestrategy-60-equity-accumulation

http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/v/vanguard-lifestrategy-20-equity-accumulation

FTSE dividend yields..

http://siblisresearch.com/data/ftse-all-total-return-dividend/

jdw2000

coastline wrote: »

http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/v/vanguard-lifestrategy-100-equity-income

http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/v/vanguard-lifestrategy-60-equity-accumulation

http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/v/vanguard-lifestrategy-20-equity-accumulation

FTSE dividend yields..

http://siblisresearch.com/data/ftse-all-total-return-dividend/

Says on those links that the "distribution yields" on the VLS products are all in the 1% range. Sounds rather low? I was expecting them to be in the 5% range. Am I misunderstanding what the "income" on these things is?


btw, mine are all on accumulators. I'm not relying on the income. I'm just trying to understand the income aspect.

Linton

jdw2000 wrote: »

Says on those links that the "distribution yields" on the VLS products are all in the 1% range. Sounds rather low? I was expecting them to be in the 5% range. Am I misunderstanding what the "income" on these things is?


btw, mine are all on accumulators. I'm not relying on the income. I'm just trying to understand the income aspect.

Income means dividend and interest. I dont know why you expect 5%. Safe bonds are paying virtually nothing and FTSE100 about 3.8%. However the UK pays very high dividends compared with most of the other world markets. The US prefers share buybacks instead, I believe for tax reasons.

Pincher

jdw2000 wrote: »

btw, mine are all on accumulators. I'm not relying on the income. I'm just trying to understand the income aspect.

I hope you know how to work out the tax, which is apparently a mix of dividend reinvested and capital gains. It scares me no end, which is why I intend to invest inside an ISA, and if I have a job with tax worth rebating, a pension.

I think I would rather run away to the Himalayas, than work out the tax on accumulation units.

bowlhead99

jdw2000 wrote: »

Says on those links that the "distribution yields" on the VLS products are all in the 1% range. Sounds rather low? I was expecting them to be in the 5% range. Am I misunderstanding what the "income" on these things is?


btw, mine are all on accumulators. I'm not relying on the income. I'm just trying to understand the income aspect.

The distribution yield is what they distribute compared to their price. They only distribute net income, not capital gains.

Most companies pay way less than 5% dividends, many pay zero. Dividend yield paid by the developed world index is about 2.5% and the VLS mix is not going to be the same as that rule of thumb. And some of the dividend is lost at source (e.g. as an overseas investor you can't avoid 15% withholding tax on dividends coming out of the USA for example). And the running costs will come out of that before they can distribute. And although they have to distribute (or declare a distribution in an Acc fund) the majority of the income each year, they may not distribute the entire 100%.

And finally even if they were on course to receive and payout dividends of 2% of the £100 that you had invested a year earlier... if the fund value has shot up by 20% in a year due to investment revaluations and exchange rate changes, your £100 is now £120ish. So when they distribute £2 to you and compare the annual yield (£2) to the *current* price (£120), that figure is less than 2% (under 1.7% in fact)

jdw2000

Pincher wrote: »

I hope you know how to work out the tax, which is apparently a mix of dividend reinvested and capital gains. It scares me no end, which is why I intend to invest inside an ISA, and if I have a job with tax worth rebating, a pension.

I think I would rather run away to the Himalayas, than work out the tax on accumulation units.

I haven't thought about the tax and have no idea yet. I have £30K invested in VLS. In April next year, £20K of that will go into my ISA for this very tax reason.

I can't imagine my £30K will accumulate too much profit between now and April (if only!)

And after April, I will only have £10K in VLS.


So I don't really see how I'm going to have too much to think about.

bowlhead99

jdw2000 wrote: »

So I don't really see how I'm going to have too much to think about.

If it's your only investment and you don't have much else in the way of dividends or realised gains / losses this year, then the divs on £30k are not going to be over your annual dividend allowance, and the gains when you sell about two thirds of your holdings in April are unlikely to be over your annual exemption.

The point is that you still have to get the figures and keep records of them so that you can prove you didn't have a tax liability, and for the potential to report any net capital losses to carry them forward into the future to offset against taxable gains you might make on things years down the line.

As income will have been received and reinvested on your behalf inside the Acc fund it is sometimes difficult to split these things out.

For example:
You buy £15000 of VWRL (paying £10 broker fee on top) and £15000 of VLS Acc (maybe with no transaction fees depending on your platform). Then you decide to move all into VLS Acc to keep things cleaner so you sell the VWRL - which had risen a bit - and receive back maybe £15050, less £10 broker fee is £15040. So you have net proceeds from that deal of £15040 against a purchase price of £15010, for £30 capital gain this year.

Then you spend the £15040 cash on buying VLS, so your total cost of buying VLS is £30040. Internally within the fund at some point, they receive dividends of £400 which they apply to buy more investments because it's an Acc fund (although you only get to find out about that later when you review all the paperwork for the year with a fine tooth comb). So now you have taxable dividend income of £400 and a newly increased investment cost of £30440.

Then as the new tax year approaches, you want to pull out about £20k to help fund your ISA. At the time you sell on 5 April, the market value of your overall VLS holding is £29990, and you decide it's best to just sell two thirds of it to get almost the £20k you want. You get £19993.33. The cost of the 'two thirds of my VLS units' is two thirds of £30,440 which is £20,293.33. So, you've made a capital loss of £20,293.33- £19993.33 = £300, and are carrying forward a remaining slice of VLS which must have cost £30440-20293.33, which is £10,146.67, and you'll need that figure recorded somewhere for when you do future sales.

Then you add up all your gains and losses for the year and see what you have. £30 gain on VWRL, £300 loss on VLS. That's £270 net loss which you can keep to offset against future gains that you might make, as long as you tell HMRC about it. And you will have to record the £400 dividends somewhere even though you didn't receive them and don't have them in bank statement, because if HMRC look into your activities they will say "hey we noticed you were invested in an Acc fund at some point in 2016/17 but don't see you paying any dividend tax, so can you prove your allocated divs were under your annual allowance for that year please?"

Some people would just think, well, I had £30k invested and I didn't make much profits and I didn't physically receive any dividends, and I have big allowances anyway, so I doubt there's much or any tax, I won't worry about that. And when I sold out of VLS it was worth about £30k which is pretty much the same as I started off with, so there's no losses worth declaring.

That would miss the opportunity to 'bank' your actual net losses for the tax year to shelter more gains from unwrapped shares/ bonds/ funds/ property in the future; and you wouldn't have an exact figure for the cost of the remaining £10kish of VLS; and it would leave you open to being asked questions about income that you can't answer in a year's time when you have closed the platform account to move somewhere cheaper and don't have access to online statements or tax vouchers.

You are definitely doing the right thing by making use of your ISAs but it is worth being aware of what goes into keeping proper tax records, and the fact that it's way simpler to use Inc funds than Acc funds outside an ISA (because you can literally see what income is being paid to you and how much of it you have chosen to reinvest, increasing your investment cost each time you do it).

The comments above are just general rather than specific to your activity between now and April as I don't know what date in the year VLS goes ex div or 'pays' its Inc fund dividends and Acc fund reinvestments.

jdw2000

bowlhead99 wrote: »

If it's your only investment and you don't have much else in the way of dividends or realised gains / losses this year, then the divs on £30k are not going to be over your annual dividend allowance, and the gains when you sell about two thirds of your holdings in April are unlikely to be over your annual exemption.

The point is that you still have to get the figures and keep records of them so that you can prove you didn't have a tax liability, and for the potential to report any net capital losses to carry them forward into the future to offset against taxable gains you might make on things years down the line.

As income will have been received and reinvested on your behalf inside the Acc fund it is sometimes difficult to split these things out.

For example:
You buy £15000 of VWRL (paying £10 broker fee on top) and £15000 of VLS Acc (maybe with no transaction fees depending on your platform). Then you decide to move all into VLS Acc to keep things cleaner so you sell the VWRL - which had risen a bit - and receive back maybe £15050, less £10 broker fee is £15040. So you have net proceeds from that deal of £15040 against a purchase price of £15010, for £30 capital gain this year.

Then you spend the £15040 cash on buying VLS, so your total cost of buying VLS is £30040. Internally within the fund at some point, they receive dividends of £400 which they apply to buy more investments because it's an Acc fund (although you only get to find out about that later when you review all the paperwork for the year with a fine tooth comb). So now you have taxable dividend income of £400 and a newly increased investment cost of £30440.

Then as the new tax year approaches, you want to pull out about £20k to help fund your ISA. At the time you sell on 5 April, the market value of your overall VLS holding is £29990, and you decide it's best to just sell two thirds of it to get almost the £20k you want. You get £19993.33. The cost of the 'two thirds of my VLS units' is two thirds of £30,440 which is £20,293.33. So, you've made a capital loss of £20,293.33- £19993.33 = £300, and are carrying forward a remaining slice of VLS which must have cost £30440-20293.33, which is £10,146.67, and you'll need that figure recorded somewhere for when you do future sales.

Then you add up all your gains and losses for the year and see what you have. £30 gain on VWRL, £300 loss on VLS. That's £270 net loss which you can keep to offset against future gains that you might make, as long as you tell HMRC about it. And you will have to record the £400 dividends somewhere even though you didn't receive them and don't have them in bank statement, because if HMRC look into your activities they will say "hey we noticed you were invested in an Acc fund at some point in 2016/17 but don't see you paying any dividend tax, so can you prove your allocated divs were under your annual allowance for that year please?"

Some people would just think, well, I had £30k invested and I didn't make much profits and I didn't physically receive any dividends, and I have big allowances anyway, so I doubt there's much or any tax, I won't worry about that. And when I sold out of VLS it was worth about £30k which is pretty much the same as I started off with, so there's no losses worth declaring.

That would miss the opportunity to 'bank' your actual net losses for the tax year to shelter more gains from unwrapped shares/ bonds/ funds/ property in the future; and you wouldn't have an exact figure for the cost of the remaining £10kish of VLS; and it would leave you open to being asked questions about income that you can't answer in a year's time when you have closed the platform account to move somewhere cheaper and don't have access to online statements or tax vouchers.

You are definitely doing the right thing by making use of your ISAs but it is worth being aware of what goes into keeping proper tax records, and the fact that it's way simpler to use Inc funds than Acc funds outside an ISA (because you can literally see what income is being paid to you and how much of it you have chosen to reinvest, increasing your investment cost each time you do it).

The comments above are just general rather than specific to your activity between now and April as I don't know what date in the year VLS goes ex div or 'pays' its Inc fund dividends and Acc fund reinvestments.

Cheers for that. Yes, my investments are all accumulators. I can change these to income, but this would involve selling and rebuying (which won't cost me anything to do).

This is worth doing then?