Income vs Accumulation Investments

tigerspill

Hi,

Something that I should probably be thinking about now I have retired.

All my investments (mostly in pension) are ACC funds.

I am trying to get my head around the logic and reasoning for potentially moving some to INC investments.

My own logic says "why bother" - if I need to take something out of the investment, then I can just sell some.
I am sure my logic is flawed in some way otherwise there would be no need for INC funds.

Just wondering if anyone can help with the basics around when to use ACC and then to use INC funds?

This is a general question for mu education and to maybe help me improve my decisions going forward.

Tom99

I you don't need the income then ACC seem better to me.
I think some people hold the INC units because otherwise a small number of units would be sold to pay the platform fees.

Albermarle

If you are looking to take ad hoc sums from your pension you might as well leave them as ACC funds and sell them as and when necessary.
However if you wanted a regular income then easier to manage with INC funds I would think.

Fermion

I switched my funds from ACC to Income funds many years before retirement and moving to Income Drawdown. I wanted to only take the natural yield from my Income Drawdown pot and Income funds made more sense as it's easier to monitor the actual cash yield.

bowlhead99

With income versions, the money just arrives in your account from your portfolio at regular intervals.

It would be magic if that was the exact amount of money that you wanted to spend that year, and if the remaining portfolio of funds (which are growing or shrinking and paying out income at different rates) ended up being held in the exact perfect proportions for your needs. So to fix your income shortfall or income excess, you will have to either manually sell some holdings or manually buy some holdings, and perhaps a bit more of one or the other to rebalance.

Whereas, if you use acc funds, you don't have any money just arriving in your account throughout the year. That £0 might not be the amount you want to spend that year and it might be that the portfolio of funds (which are growing or shrinking at different rates) do not up being held in the exact perfect proportions for your needs. So to fix your income shortfall you may have to either manually sell some holdings, and may also need to sell or buy among your portfolio holdings to rebalance.

Bottom line is your own preferences for spending and frequency of rebalancing might drive whether you prefer Inc or Acc.

If a portfolio gives an overall total return of 8% and the types of things you want in your portfolio happen to provide natural income of 4%, your preferences for 2% spending money may lead you to use Inc, take 2% (and reinvest the spare 2%), or maybe your preference for 6% spending money may lead you to use Inc, sell extra 2% instead. But equally you could just use Acc and sell the 2% you want, or use Acc and sell the 6% you want.

Audaxer

tigerspill wrote: »

I am trying to get my head around the logic and reasoning for potentially moving some to INC investments.

My own logic says "why bother" - if I need to take something out of the investment, then I can just sell some.

If you wanted to take regular monthly dividends as income from your portfolio, it makes it easier to have INC funds. I also think it would be a more difficult decision to decide when to sell units in a falling market, rather than just taking dividends.

If however you only want to take adhoc withdrawals it is okay to leave them as ACC funds.

jamesd

tigerspill wrote: »

Just wondering if anyone can help with the basics around when to use ACC and then to use INC funds?

Use income outside a tax wrapper because it simplifies your CGT calculations. Purchases happen only when you make them at prices you know so it's easy to track and update the average purchase price. If you use accumulation units you instead have to get details of the effect of the built in reinvestments.

Inside a tax wrapper like ISA or pension the CGT is irrelevant and it's more about:
1. taking natural income
2. wanting some income to cover charges
3. wanting the money to use for rebalancing or other purchases

Some platforms will charge for some transactions and using accumulation units could reduce reinvestment costs.

tigerspill

Thanks folks,
Apologies for the delay in responding.
Reading the replies, I will generally be withdrawing on an ad-hoc basis which makes me think Acc will be better for me.  The overhead if selling funds a few times (max) per year docent seem too onerous.
Much of my money is in tax wrappers - now mainly ISAs now that I have taken my pension and had to dis-invest my DC/AVC elements of my main occupational pension.
I now have also a significant sum that I will be investing unwrapped.  It is this that I will be withdrawing first.  And transferring to ISAs each year until all is wrapped (and £2880 to SIPP). 
Re CGT - If I sell / move to ISA regularly, I don't think CGT will be a problem as I cant see me having over £12K profit.
At least I think that is my plan.

Albermarle

Seeing Post 5 in this thread made me feel quite nostalgic 

tigerspill

Albermarle said:

Seeing Post 5 in this thread made me feel quite nostalgic 

Indeed.  Thought they would be back by now.  A big loss to us all!

dunstonh

Albermarle said:

Seeing Post 5 in this thread made me feel quite nostalgic 

Seeing a post number made me feel nostalgic too.