Crazy/weird question re VLS

sixpence.

Okay, so in order to ask this I am going to use an example. I will try to be as brief and as clear as possible.

- Let's say a person had 100K sitting in a bank account (that they could do without for 2 months).
- The historic yield for the VLS 60 is currently 1.56% the ex dividend date is April 3rd. The payment date is May 31st.

What is to stop people from investing in this fund on April 2 and selling on June 1st - I know there is a chance the fund will decrease in value but say it stays roughly the same or goes up 1-2% - and making an easy £1,560? And if it is that easy then why don't people do this all the time instead of opening savings accounts which are low interest etc. With £500 or 10K or whatever?

barnstar2077

Like you say, if it was that easy then everyone would do it,

Prism

Because it will not stay the same - it will drop in value by around the same as the dividend so what you get on the 31st May you will lose from the value of the fund in April.

DrSyn

So you think you think it is easy and you have found an way to make a profit that others have failed to spot.

Go ahead and try it three or four times. Then come back and tell us how well you did (or not).

No cheating, remember to include all the buying and selling costs.

PS. And lets say it goes down by 1-2%, instead of going up by that amount.

AnotherJoe

You're absolutely correct, it is a stupid / weird question.

londoninvestor

Prism wrote: »

Because it will not stay the same - it will drop in value by around the same as the dividend so what you get on the 31st May you will lose from the value of the fund in April.

Exactly.

The dividend is paid from cash that is already owned by the fund (the fund has collected dividends from the companies it owns).

And so just before the XD date, all this accumulated cash is reflected in the unit price of the fund; after the XD date, the unit price drops to reflect that this cash is now on its way to unitholders.

(As long as we're talking about Income units of course. For Accumulation units, the fund reinvests the cash rather than paying it out.)

MaxiRobriguez

What others have said.

Plus you wouldn't have to wait til June 1st, you could sell on XD date itself and receive the payment the following month.

triplea35

To be totally honest, and admit that I am very much an 'absolute amateur' investor, I came up with the same idea in early 2018, not with VLS though but using high yield bonds, Royal London Extra Yield and then the even more riskier/volatile Templeton Emerging Markets.

I put £150k in my wife's HL Fund & Share account, so no dealing costs for the purchase and sale of the funds.

Prior to dealing I did suddenly realise that the price would drop significantly once ex-dividend but decided to continue with the experiment as historically the price appeared to bounce back somewhat shortly afterwards

I put the £150k in Royal London just prior to ex dividend, sold them a few days later at a loss just short of £2k but with the expected dividend, resulted in a profit of just over £400
A short time later I put the remaining £148k in Templeton, sold with a £2.5k loss but an expected dividend of £3.5k made a profit of £900.

So a profit of £1353, around 0.9% for exposure to the market of a few days on each transaction. Didn't sleep that easy, so not sure it was worth the risk and also realised I had rapidly exceeded my wife's dividend allowance! (then £5k but now only £2k)

badger09

sixpence. wrote: »

Okay, so in order to ask this I am going to use an example. I will try to be as brief and as clear as possible.

- Let's say a person had 100K sitting in a bank account (that they could do without for 2 months).
- The historic yield for the VLS 60 is currently 1.56% the ex dividend date is April 3rd. The payment date is May 31st.

What is to stop people from investing in this fund on April 2 and selling on June 1st - I know there is a chance the fund will decrease in value but say it stays roughly the same or goes up 1-2% - and making an easy £1,560? And if it is that easy then why don't people do this all the time instead of opening savings accounts which are low interest etc. With £500 or 10K or whatever?

Having skim read your other recent threads, you really do need to consult a couple of IFAs

The sums you are talking about are life changing. Please don't waste this opportunity on some hairbrained scheme.

No offence meant;)

sixpence.

badger09 wrote: »

Having skim read your other recent threads, you really do need to consult a couple of IFAs

The sums you are talking about are life changing. Please don't waste this opportunity on some hairbrained scheme.

No offence meant;)

No offence taken! I would NEVER actually do this because, as another poster said, if it was that easy everyone would do it. I just wanted to know why it wasn't possible. Don't worry I am not about to do anything with my money without speaking to an IFA

I actually have a retirement fund which I researched and am pretty happy with so I do have some basic knowledge of this stuff, I promise lol

seacaitch

Newcomers to investing commonly have these "free lunch" notions that implicitly assume (whether they realise it or not...) that the millions of existing operators in global financial markets are a bunch of dopey, lazy, half-wits as opposed to them including in their number many of the very smartest, sharpest and shark-like folks on the planet.

The reality is that any "scheme" giving an the appearance of quick, easy, "guaranteed" win in markets almost certainly is simply a signal that you haven't properly understood the totality of the situation nor the actual risks involved, and that you are potentially the free lunch.

Re the OP, sixpence, with 700k landing on their plate and little relevant experience they should really be seeking professional advice and not be trying to wing it in a field they have little knowledge of.