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  • FIRST POST
    • soti84
    • By soti84 7th Aug 18, 6:52 PM
    • 9Posts
    • 1Thanks
    soti84
    Keeping Investment in Income Units Rather Than Accumulation Ones
    • #1
    • 7th Aug 18, 6:52 PM
    Keeping Investment in Income Units Rather Than Accumulation Ones 7th Aug 18 at 6:52 PM
    Hello Guys,
    I just would like to know what your opinion is on investing in income units as opposed to accumulation ones for a particular fund.
    Considering that I reinvest my income anyway, are there any advantages for me to invest in accumulation units? Most of the growth funds I hold produce a negligible dividend but hopefully by the time I retire (which is about 25 years down the line, if I am still alive) I would have about a couple of hundred thousand grand accumulated and the income from that in conjunction with my pension would allow us to get by comfortably.
    I just want to avoid the hefty fees platforms charge for conversion.
    Also, I would like to know what is the commonly accepted approach in this respect, when planning for retirement? Do you normally invest in the accumulation units of growth funds and then upon retirement sell these out and purchase pure income funds?

    Thank you.
Page 1
    • ColdIron
    • By ColdIron 7th Aug 18, 6:57 PM
    • 4,729 Posts
    • 6,195 Thanks
    ColdIron
    • #2
    • 7th Aug 18, 6:57 PM
    • #2
    • 7th Aug 18, 6:57 PM
    Are these funds in a tax privileged account such as an ISA/SIPP or unwrapped?
    • soti84
    • By soti84 7th Aug 18, 7:00 PM
    • 9 Posts
    • 1 Thanks
    soti84
    • #3
    • 7th Aug 18, 7:00 PM
    • #3
    • 7th Aug 18, 7:00 PM
    Hello ColdIron,

    Yes, the funds are in an ISA with HL.
    • ColdIron
    • By ColdIron 7th Aug 18, 7:44 PM
    • 4,729 Posts
    • 6,195 Thanks
    ColdIron
    • #4
    • 7th Aug 18, 7:44 PM
    • #4
    • 7th Aug 18, 7:44 PM
    Inc units are preferable when unwrapped as it can simplify tax reporting but within an ISA you don't have to worry about this so Acc units are preferred by many. Acc units save you the task of manual reinvestment. Most platforms have minimum value for fund purchases, say £100 per fund, but if the yield from your funds is low you could have to wait a while until you have enough. You have the option of automatic reinvestment although many platforms, including HL, make a charge for this so Acc units may be a little cheaper. Some people like Inc units as it allows them to perform a sort of ongoing rebalancing but with low yielding funds there may not be enough to overcome the disparities that can arise

    I just want to avoid the hefty fees platforms charge for conversion.
    HL don't charge for selling one fund and purchasing another
    • masonic
    • By masonic 7th Aug 18, 7:54 PM
    • 9,959 Posts
    • 7,168 Thanks
    masonic
    • #5
    • 7th Aug 18, 7:54 PM
    • #5
    • 7th Aug 18, 7:54 PM
    hopefully by the time I retire (which is about 25 years down the line, if I am still alive) I would have about a couple of hundred thousand grand accumulated and the income from that in conjunction with my pension would allow us to get by comfortably.
    Originally posted by soti84
    Well a couple of hundred thousand grand should see you living quite comfortably

    Do you normally invest in the accumulation units of growth funds and then upon retirement sell these out and purchase pure income funds?
    It is quite normal to make changes to your investments over time as your circumstances change. So there will be plenty of opportunity to switch to income when it is needed. Before then, it's best to do what works best for you now, which in this case would probably going for Acc units.
    • eskbanker
    • By eskbanker 7th Aug 18, 7:56 PM
    • 8,227 Posts
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    eskbanker
    • #6
    • 7th Aug 18, 7:56 PM
    • #6
    • 7th Aug 18, 7:56 PM
    Well a couple of hundred thousand grand should see you living quite comfortably
    Originally posted by masonic
    Unless it was all spent on Neymar....
    • dunstonh
    • By dunstonh 7th Aug 18, 7:57 PM
    • 95,397 Posts
    • 63,038 Thanks
    dunstonh
    • #7
    • 7th Aug 18, 7:57 PM
    • #7
    • 7th Aug 18, 7:57 PM
    I just would like to know what your opinion is on investing in income units as opposed to accumulation ones for a particular fund.
    I always go income units where possible. Doesnt matter what stage.

    I just want to avoid the hefty fees platforms charge for conversion.
    Most platforms do not offer conversion and would need to do it as a fund switch. However, I am not aware of many that charge anything and those that do tend to be very small (as they often have a lower annual charge).
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • colesy
    • By colesy 7th Aug 18, 8:13 PM
    • 60 Posts
    • 36 Thanks
    colesy
    • #8
    • 7th Aug 18, 8:13 PM
    • #8
    • 7th Aug 18, 8:13 PM
    I always go income units where possible. Doesnt matter what stage.
    Originally posted by dunstonh
    Can I ask why that is? My IFA made a similar remark a few years ago which I didnít follow up on at the time.
    • dunstonh
    • By dunstonh 7th Aug 18, 8:24 PM
    • 95,397 Posts
    • 63,038 Thanks
    dunstonh
    • #9
    • 7th Aug 18, 8:24 PM
    • #9
    • 7th Aug 18, 8:24 PM
    Can I ask why that is? My IFA made a similar remark a few years ago which I didnít follow up on at the time.
    Originally posted by colesy
    Its easier for CGT purposes. Not all platforms retain the data or make available the data on acc units history and notional distributions.

    Rebalancing portfolios allows excess cash to be distributed to the sectors that need incrementing rather than back into the sector they came from.

    and finally, sustainability. No need to worry about moving between acc and inc when circumstances change. There may be a time you must have inc but there is never a time you must have acc.

    Just convenience really.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • darkidoe
    • By darkidoe 8th Aug 18, 1:16 AM
    • 965 Posts
    • 1,119 Thanks
    darkidoe
    Accumulation units if you don't want the hassle for reinvestment and would like to be more passive in your investments. You probably can avoid further transaction costs as well.

    I like income units for the stream of dividends you receive and having to reinvest it myself. Gives me a sense of responsibility. In terms of retirement as well, you will get a stream of natural income from the investments rather than having to sell investments.

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    • Bravepants
    • By Bravepants 8th Aug 18, 7:29 AM
    • 481 Posts
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    Bravepants
    I have started to "experiment" with monthly income funds, not with my entire portfolio but a portion of it, just to see how effective and stable they are in providing income compared to capital volatility. I'm with darkidoe in that I would rather try to avoid selling units in retirement (hopefully only a few years off) and I would rather experiment while I'm working than after retirement.
    • george4064
    • By george4064 8th Aug 18, 7:52 AM
    • 1,031 Posts
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    george4064
    HL don't charge for selling one fund and purchasing another
    Originally posted by ColdIron
    In addition, there might be other transaction costs such as bid/offer spread depending on the fund.
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    • george4064
    • By george4064 8th Aug 18, 7:54 AM
    • 1,031 Posts
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    george4064
    I have started to "experiment" with monthly income funds, not with my entire portfolio but a portion of it, just to see how effective and stable they are in providing income compared to capital volatility. I'm with darkidoe in that I would rather try to avoid selling units in retirement (hopefully only a few years off) and I would rather experiment while I'm working than after retirement.
    Originally posted by Bravepants
    If you havenít already, I would recommend you follow JohnRoís monthly income thread here: https://forums.moneysavingexpert.com/showthread.php?t=4662291&highlight=monthly+income
    "If you arenít willing to own a stock for ten years, donít even think about owning it for ten minutesĒ Warren Buffett

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    • soti84
    • By soti84 9th Aug 18, 12:58 PM
    • 9 Posts
    • 1 Thanks
    soti84
    Thank you all for your valuable comments and suggestions. Much appreciated.
    • AnotherJoe
    • By AnotherJoe 9th Aug 18, 3:50 PM
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    AnotherJoe
    In the long term inc units will result in slightly lower growth because you will have less money invested overall.
    • Bravepants
    • By Bravepants 9th Aug 18, 7:23 PM
    • 481 Posts
    • 568 Thanks
    Bravepants
    Is it true to say though that as the capital value falls the yield increases, and so the income (say monthly) would stay the same or very close?



    I mean apart from yield falling because some companies held in the fund would retain more profits to grow the company and thus improve share price.
    • masonic
    • By masonic 9th Aug 18, 8:14 PM
    • 9,959 Posts
    • 7,168 Thanks
    masonic
    Is it true to say though that as the capital value falls the yield increases, and so the income (say monthly) would stay the same or very close?

    I mean apart from yield falling because some companies held in the fund would retain more profits to grow the company and thus improve share price.
    Originally posted by Bravepants
    Often capital values fall during times when company earnings are falling and coincides with or immediately precedes dividends being cut.
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