Investment - Accumulation vs Income

Thrugelmir

jacko74 said:

I don't see the point of inc and acc accounts.

Anyone can still withdraw as much or as little as they choose from an acc account anyway.

Not every investor wishes to buy more of the same fund or buy into a fund at a particular point in time. Accumulated cash can also be used to diversify. 

Sea_Shell

Thrugelmir said:

jacko74 said:

I don't see the point of inc and acc accounts.

Anyone can still withdraw as much or as little as they choose from an acc account anyway.

Not every investor wishes to buy more of the same fund or buy into a fund at a particular point in time. Accumulated cash can also be used to diversify. 

But, unless I'm missing something can't you just do that manually by selling ACC units (whenever/how many) and re-buying what ever you want, or withdrawing the cash?

ColdIron

Some platforms make a charge for sales, dividend distributions have no charge and they just turn up in, say, your bank account with no actions from you. Handy if you use those dividends as income

Conversely many platforms make a charge for dividend reinvestment so if you just want the dividends to continuously roll up, an Acc fund makes sense for many

Of course all those sales and purchases will generate quite a few contract notes over the years which can be bothersome, especially if there is a class that does what you want automatically

Horses for courses, the right tools for the job and all that good stuff

Sea_Shell

I forgot about platform fees!!! 🤦🏼‍♀️

We're with Fidelity, so don't pay "per trade".

Thrugelmir

Sea_Shell said:

Thrugelmir said:

jacko74 said:

I don't see the point of inc and acc accounts.

Anyone can still withdraw as much or as little as they choose from an acc account anyway.

Not every investor wishes to buy more of the same fund or buy into a fund at a particular point in time. Accumulated cash can also be used to diversify. 

But, unless I'm missing something can't you just do that manually by selling ACC units (whenever/how many) and re-buying what ever you want, or withdrawing the cash?

In an accumulation fund the income generated from investments will be reinvested , in the income fund it will be held as cash pending distribution. 

Alexland

Sea_Shell said:

We're with Fidelity, so don't pay "per trade".

Once your account gets big enough it might be cheaper to pay per trade with Fidelity capping their ongoing charge on exchange traded investments.

Albermarle

Probably Lifestrategy 40% equity or other lowish risk fund.

A couple of things  maybe to ponder before going ahead.

 Although the big rise in equity markets over the last few years has been the main driver for the performance of VLS 40 ,( and many other funds ) the larger  non equity/bonds part has been performing quite well also. However there is a pretty clear consensus that bonds will struggle in the future months/years, and that VLS funds may not prove so successful as they have done until now. Or any fund with a lot of longer dated bonds in them . 

What could be a good alternative to bonds is discussed regularly on this forum with the usual variety of opinions expressed. There is no clear answer but one alternative is to invest in a high ( 100%) equity fund but keep a lot of cash back .

Or invest in more actively managed funds 

Or invest in a similar but not identical fund to VLS40 that is not fixed allocation ( 40:60 for example ) 

Diversify more into non equity or binds , like gold for example.

Not saying VLS 40 is a bad choice, but just to be aware that 'past performance is no guarantee of  future returns '

Tommohawk

eskbanker said:

Tommohawk said:
So that means that if for example the exact same fund were available as either income or acc, the income tax liability would be the same either way but the CGT liability would be greater in the acc format?

No, the CGT liability would be the same either way too....

Gee I'm flummoxed! If the capital value has increased the same in either case, then over a given period of time with the income option you would have had an income of £x and a capital gain of £y on disposal. But over the same period with the acc option you would have no income and a capital gain of £y, the same capital gain on disposal as with the income class option. 

That would make the latter option a poorer deal, no? Same capital gain but no income?  I obviously have this wrong but cant see how! 

Sea_Shell

The acc unit value would have increased by the amount of the equivalent income over and above the Inc units...I think.

Alexland

Yes the Acc units would reinvest the retained income in additional capital which is why the unit price would rise faster.