How are dividends calculated LS80

Flymoto

Hi, me and my partner have a joint investment that, mainly we decided to invest in vanguard LS80. She is a little more clued up than me on this, but still don’t understand it. We hold £17,000, and the dividends for April 18-19 was just paid on the 1st of June. I received £314. Even though we was up 8% at the time. Am I been totally stupid, as I’m not sure how they are calculated. £314 seems low, if this is the case it’s not worth the risk for me, even though I won’t want to touch the money for another 15 years atleast.

Hope someone can help.

Thanks

fred246

If you look at:
https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/v/vanguard-lifestrategy-80-equity-accumulation
Under the income details it has 1.76% paid annually on 31st May. It was a bit higher due to increased dividend payments this year. I calculate it at 1.84% given your figures. You must have bought the INC version of the fund where the dividends are paid out instead of the ACC version where the dividends are reinvested. The share prices can fluctuate greatly (that's where your 8% comes in) whereas the dividend should be more stable. Hopefully the price of the shares will increase over 15 years. Share prices are a bit like house prices. Can go down, can be the same for long periods but generally the direction is up.

eskbanker

Flymoto wrote: »

Hi, me and my partner have a joint investment that, mainly we decided to invest in vanguard LS80. She is a little more clued up than me on this, but still don’t understand it. We hold £17,000, and the dividends for April 18-19 was just paid on the 1st of June. I received £314. Even though we was up 8% at the time. Am I been totally stupid, as I’m not sure how they are calculated. £314 seems low, if this is the case it’s not worth the risk for me, even though I won’t want to touch the money for another 15 years atleast.

The majority of equity-related investments will be expected to grow in value and also to generate income, which are two entirely separate things.

The 8% you refer to will be the growth in value, which will have increased your £17K initial investment to a current value of more like £18.3K.

The dividend, on the other hand, is simply an income stream that is paid out from the investment annually for such funds (or reinvested if you choose Acc units).

If your investment isn't in a tax-free wrapper such as an ISA or SIPP, then the value growth will eventually be subject to capital gains tax, whereas the dividend income is subject to income tax - in both cases there are annual allowances so if the figures are low enough then you won't actually need to pay anything.

Flymoto

Thank you for your help.

Ok I see, yes it is income. The share prices has fluctuated in the last 2 or 3 years since we have had it but it has slowly been increasing, hence I thought I would recieve more than I did. So realistically, with the money in there (17k) I am never really going to see greater returns more than £400 annually?

Thanks

Flymoto

Yes, i see now, it’s just clicked. I think i was mis guided. So consistently 1.8% yield annually, then when I come to sell back I’ll get whatever I have gained in growth in value!

Thanks, and sorry to sound like a idiot!

JohnRo

Flymoto wrote: »

So realistically, with the money in there (17k) I am never really going to see greater returns more than £400 annually?

You are, if the various markets that fund is exposed to rise accordingly.

Admittedly it's more likely that sort of gain would occur after a similar fall in value as prices recover but as with all investments noone can be certain what's going to happen in future.

Thrugelmir

Flymoto wrote: »

So realistically, with the money in there (17k) I am never really going to see greater returns more than £400 annually?

Not a fund that's going to generate high levels of income distribution in the medium term. Ideally you should be reinvesting the income. That's the way to achieve compound growth.