Acc vs Dist ETF

Marcusian

I always get some very informative answers on here, so prefer to just.

As i rather simplistically understand it, the acc vs dist debate comes down to the fact that if long term growth is your goal with your investment, invest in the accumulating. 

But why would you not do both? So I invest in the Lifestrategy 100% fund and a bit in the US Equity index (not ETFs i know) for my sons. But would investing in say VHYL for some income alongside that be a bad move?

Like I said, just someone keen to learn here. 

AlanP_2

Do they need to take regular income out?

If they don't what's the point really as overall returns, over time would be the same.

george4064

Whilst I reinvest all of my dividend income (eventually), I tend to invest in distributing ETFs because I like the flexibility it offers by allowing me to reinvest any distributions into other ETFs or trusts I hold that are underweight their strategic targets.

Prism

The difference between an acc and inc version of the same fund is just down to how you get the dividends. Generally acc is the easiest option as it reinvests the dividends for you - the inc version requires you to reinvest them yourself but allows for flexibility in what you invest them into, or in fact withdraw and spend them. Some funds/ETFs do not give you the choice

Then you asked about a different VHYL which is a very different question. It invests in a very different allocation of companies which pay a higher dividend. I would avoid.

dunstonh

 So I invest in the Lifestrategy 100% fund and a bit in the US Equity index (not ETFs i know) for my sons.

Why not do a global tracker instead of a managed asset allocation if you don't believe in the VLS asset allocation?

As i rather simplistically understand it, the acc vs dist debate comes down to the fact that if long term growth is your goal with your investment, invest in the accumulating. 

WIth income reinvested, ignoring charges, the returns would be the same.   However, some platforms charge for reinvestment whilst some do not.   If you have picked a platform with charges for reinvestment then ACC would make more sense.

I tend to go Inc units as it allows replenishment of the cash account with any excess going into other funds and not necessarily the same one it came from.  However, I use platforms that dont charge for reinvestment

Marcusian

Thanks guys 
I guess (and sorry for using VHYL, I just meant as an example, I would likely use VWRL) I meant i would use the lifestrategy to play long and just let it build forever until i needed it long in the future. Then use VWRL, or a distributing one, to withdraw the dividend as income? 

I was curious as to the folly or otherwise of that?

Alexland

As Prism commented I would avoid VHYL like the plague as passive investing is not suited to high income investing. It takes some skill to avoid just buying into all the dividend traps. With regards VWRL my view is that at 0.22% it's expensive compared to the HSBC FTSE All World fund at 0.13% which tends to perform better.

However I do think you have a point which is that rather than derisking into bonds as you are approaching retirement you might decide to try and accumulate enough equities that you could live off the natural dividend yield in which case the equity price volatility might not matter. But with yields so low it takes a lot of money to comfortably do that. I prefer investment trusts when investing for income as they have the ability to use leverage and accounting reserves to smooth the dividends.

DireEmblem

My thoughts if you were to go with the Dist/Inc class rather than Acc, is you could potentially risk additional distribution costs and time out of the market, depending on when the reinvesting price is taken.  That being said, long term it might average out.

Marcusian

All makes sense, I very much take the JL Collins approach with it all, but I did think, with some spare lump sum cash, putting a bit into a dist. ETF and just leaving it to pay out. The idea, for me, would be to use the dividend as ready money to use in the here and now. 

All the funds I pay into are just on autopilot, for my sons (10 year old twins, 13) it's to build them a little fund either to use for their first car or uni or house deposit or to take over themselves and build. And for me, 38, see if in 10 or more years if it's worth using for whatever goal i have. I also have a work place pension and SIPP for that my business now pays into. 

Sebo027

I don't do this myself, but one reason I have seen written on this forum for opting for distributing units instead of accumulation is for easier accounting when it comes to declaring dividends if the investment is held in a General Investment Account or similar - and thus subject to dividend tax - i.e. not in an ISA or tax sheltered envelope. 

ColdIron

The dividends are easy to establish, they will be declared on your annual tax certificate even in the Acc class. Where it becomes more useful is working out you capital gain over a number of years where dividends should be deducted to give a true picture of that gain. Imagine you have been making regular investments to a GIA over a number of years and are now doing an annual bed and ISA to tuck it away. It's a lot easier to work out your gain(s) if you take dividends out of the equation