Vanguard automatic reinvestment of dividends

CreditCardChris

Yes it's me again... I have decided to be a bit more optimistic about the UK and that epic thread a few days ago and in addition to my global all cap fund, I have decided to allocate 10% of my portfolio specifically to the Vanguard FTSE 250 ETF (VMID). So now it'll be 90% global all cap, 10% FTSE 250 just so I get a little more exposure to UK mid size companies. However unlike the global all cap, I don't think Vanguard automatically reinvests to dividends for you because that is a distributing fund, not an accumulating fund? 

I've trawled through the settings and cannot see if there's an option to automatically reinvest. Is there anyway to set it up for the dividends get automatically reinvested on my behalf or will I have to login manually and do it? They don't seem to have an accumulation version of the fund?

bowlhead99

CreditCardChris said:

I've trawled through the settings and cannot see if there's an option to automatically reinvest. Is there anyway to set it up for the dividends get automatically reinvested on my behalf or will I have to login manually and do it? They don't seem to have an accumulation version of the fund?

I'm not a customer so don't know if they have that facilty, but it's true that VMID is a distributing ETF and Vanguardinvestor don't offer it as an accumulating version.

ETFs are traded on the stock exchange and so their shares can only be purchased in whole units, and a share costs about £27 each. I'm not aware of Vanguard having an auto-reinvestment facility, but it may not be amazingly useful for you if you are only investing small amounts. They pay the dividends 4x a year, so if you imagine you have a £10000 portfolio, £1000 of it would be in VMID, then if it pays you dividends of 3-4% a year that's only £30-40, and the £30-40 would be split up into four unequal quarterly chunks, so most of the time it would not even buy one share, and by the end of the year you would have accumulated enough to buy one share but would have some money left over. 

Of course, you do need some money in the account to pay their periodic 0.15% fee on the whole portfolio, so you could perhaps use the dividend income for that instead (10% of your portfolio yielding 3% a year would generate about 0.3% of the value of the portfolio in cash each year) and just tidy up your allocations when you do an annual rebalance.

CreditCardChris

bowlhead99 said:

CreditCardChris said:

I've trawled through the settings and cannot see if there's an option to automatically reinvest. Is there anyway to set it up for the dividends get automatically reinvested on my behalf or will I have to login manually and do it? They don't seem to have an accumulation version of the fund?

I'm not a customer so don't know if they have that facilty, but it's true that VMID is a distributing ETF and Vanguardinvestor don't offer it as an accumulating version.

ETFs are traded on the stock exchange and so their shares can only be purchased in whole units, and a share costs about £27 each. I'm not aware of Vanguard having an auto-reinvestment facility, but it may not be amazingly useful for you if you are only investing small amounts. They pay the dividends 4x a year, so if you imagine you have a £10000 portfolio, £1000 of it would be in VMID, then if it pays you dividends of 3-4% a year that's only £30-40, and the £30-40 would be split up into four unequal quarterly chunks, so most of the time it would not even buy one share, and by the end of the year you would have accumulated enough to buy one share but would have some money left over. 

Of course, you do need some money in the account to pay their periodic 0.15% fee on the whole portfolio, so you could perhaps use the dividend income for that instead (10% of your portfolio yielding 3% a year would generate about 0.3% of the value of the portfolio in cash each year) and just tidy up your allocations when you do an annual rebalance.

Thanks. Yeah it's not a big deal if I can't automatically reinvest and I can just log in each quarter and buy extra shares if I can afford to with the dividends I've earned. 

One more question, and I know tax questions are not meant to be asked online and people get funny about it... But it's a stock and shares ISA and each year I can earn £2000 a year in dividends (I'll earn nowhere near this with my 10% allocation) so if I earn less than £2000, do I still HAVE to declare it, is there anything I need to do tax wise or is it only when I go over the £2000 limit that I need to start dealing with taxes? 

grumiofoundation

CreditCardChris said:

bowlhead99 said:

CreditCardChris said:

I've trawled through the settings and cannot see if there's an option to automatically reinvest. Is there anyway to set it up for the dividends get automatically reinvested on my behalf or will I have to login manually and do it? They don't seem to have an accumulation version of the fund?

I'm not a customer so don't know if they have that facilty, but it's true that VMID is a distributing ETF and Vanguardinvestor don't offer it as an accumulating version.

ETFs are traded on the stock exchange and so their shares can only be purchased in whole units, and a share costs about £27 each. I'm not aware of Vanguard having an auto-reinvestment facility, but it may not be amazingly useful for you if you are only investing small amounts. They pay the dividends 4x a year, so if you imagine you have a £10000 portfolio, £1000 of it would be in VMID, then if it pays you dividends of 3-4% a year that's only £30-40, and the £30-40 would be split up into four unequal quarterly chunks, so most of the time it would not even buy one share, and by the end of the year you would have accumulated enough to buy one share but would have some money left over. 

Of course, you do need some money in the account to pay their periodic 0.15% fee on the whole portfolio, so you could perhaps use the dividend income for that instead (10% of your portfolio yielding 3% a year would generate about 0.3% of the value of the portfolio in cash each year) and just tidy up your allocations when you do an annual rebalance.

Thanks. Yeah it's not a big deal if I can't automatically reinvest and I can just log in each quarter and buy extra shares if I can afford to with the dividends I've earned. 

One more question, and I know tax questions are not meant to be asked online and people get funny about it... But it's a stock and shares ISA and each year I can earn £2000 a year in dividends (I'll earn nowhere near this with my 10% allocation) so if I earn less than £2000, do I still HAVE to declare it, is there anything I need to do tax wise or is it only when I go over the £2000 limit that I need to start dealing with taxes? 

Because its an ISA it is tax free.

The £2000 dividend allowance is for outside ISA.

If you do get paid dividends but you earn less than £2000 you don't need to inform HMRC. 

bowlhead99

grumiofoundation said:

CreditCardChris said:

One more question, and I know tax questions are not meant to be asked online and people get funny about it... But it's a stock and shares ISA and each year I can earn £2000 a year in dividends (I'll earn nowhere near this with my 10% allocation) so if I earn less than £2000, do I still HAVE to declare it, is there anything I need to do tax wise or is it only when I go over the £2000 limit that I need to start dealing with taxes? 

Because its an ISA it is tax free.
The £2000 dividend allowance is for outside ISA.
If you do get paid dividends but you earn less than £2000 you don't need to inform HMRC. 

For completeness: you are talking about earning nowhere near the £2000 "with your 10% allocation" to VMID. However, your 90% allocation is still going to an equity-based investment that will generate income. The fact that your money in global all cap is going into an accumulating rather than distributing fund does not change whether or not tax is due on the investment income - it just changes whether the investment income is physically sent to your platform cash account or retained within the fund for your benefit.  So, if all this was happening in a 'taxable' general investment account, you would need to consider both the VMID income (paid) and the global all-cap (accumulated) in total, against your limit.

But as you have said it's a stocks and shares ISA, grumio's point that all income and gains in an ISA are tax free is the relevant thing. HMRC don't want to know about any income received (or earned and accumulated) if it's happening inside an ISA. That's why people use ISAs. 

I only mention the above to broaden your understanding in case at some point you end up having so much money to invest that you have run out of ISA subscription allowance and start to invest outside one in a general investment account.

CreditCardChris

bowlhead99 said:

grumiofoundation said:

CreditCardChris said:

One more question, and I know tax questions are not meant to be asked online and people get funny about it... But it's a stock and shares ISA and each year I can earn £2000 a year in dividends (I'll earn nowhere near this with my 10% allocation) so if I earn less than £2000, do I still HAVE to declare it, is there anything I need to do tax wise or is it only when I go over the £2000 limit that I need to start dealing with taxes? 

Because its an ISA it is tax free.
The £2000 dividend allowance is for outside ISA.
If you do get paid dividends but you earn less than £2000 you don't need to inform HMRC. 

For completeness: you are talking about earning nowhere near the £2000 "with your 10% allocation" to VMID. However, your 90% allocation is still going to an equity-based investment that will generate income. The fact that your money in global all cap is going into an accumulating rather than distributing fund does not change whether or not tax is due on the investment income - it just changes whether the investment income is physically sent to your platform cash account or retained within the fund for your benefit.  So, if all this was happening in a 'taxable' general investment account, you would need to consider both the VMID income (paid) and the global all-cap (accumulated) in total, against your limit.

But as you have said it's a stocks and shares ISA, grumio's point that all income and gains in an ISA are tax free is the relevant thing. HMRC don't want to know about any income received (or earned and accumulated) if it's happening inside an ISA. That's why people use ISAs. 

I only mention the above to broaden your understanding in case at some point you end up having so much money to invest that you have run out of ISA subscription allowance and start to invest outside one in a general investment account.

Thanks for the clarification. I'm probably never going to be able to invest more than the £20k limit, especially as it increases all the time as well. £20k is plenty for me.