2D·

Distributing or accumulating?

Until a few days ago, I was very sure that after my restart I would switch from the distributing $VWRL (-0.77%) into the accumulating $VWCE (-0.64%) as my other two positions in the portfolio don't pay out any dividends either and it is said that an accumulating ETF generates slightly higher returns than its distributing counterpart with manual reinvestment.

However, my previous portfolio provided me with monthly distributions, which motivated me a lot in times of crisis - especially when I was able to follow the steady increases.

The accumulating variant will of course ultimately yield a few percent more, but is the difference still worth mentioning after the introduction of the advance lump sum? Would this be relevant with an investment horizon of 40 years?

Personally, I find steadily growing distributions simply super motivating, but of course I don't want to waste any returns "unnecessarily" either.

There would be no transaction costs for manual reinvestment and you could use the distributions directly for rebalancing.

What would you opt for?

Or what did you decide on and why?

35 Comments

Mr.WealthCreator@STVM

Clearly Team Distributing, if you would like capital income in old age.
1. very motivating if the monthly and annual distributions increase.
2. you would have to switch everything from accumulating to distributing in old age and then some tax would be due.

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Tobi60@Tobi60

@STVM yep, I was just about to write that too. That's the reason why I invest in $VWRL right from the start. So that I don't have to reallocate later or sell something every month.

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Mr.WealthCreator@STVM

@Tobi60 This is the way 💪🏻👍🏻

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Tobi60@Tobi60

@STVM Mandalorians among themselves 🫡

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Mav83!@Maverick4831

@STVM he can also simply withdraw from the accumulating fund, it stays the same. you don't have to reallocate...
I have spoken!

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Kochi@K0chi

@STVM well, there are still various withdrawal strategies

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Stefan@Da_Fischi

I felt the same way and have become happy with a hybrid solution: currently 60% accumulating and 40% distributing. Not everything always has to be black or white 😁

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mami_goes_boerse@mami_goes_boerse

You've mentioned the reasons above, but I don't think the psychological aspect should be neglected either. Personally, I would always have a portion distributed.

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Saschko@WarrenamBuffet

Distributing team. You have given reasons

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Cekay@CMustermann

I'm a very rational person but the monthly transfers of cash just do something to my lizard brain. I have both, distributions up to the allowance for me and my wife and a little over.

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Erich K.@Erich_aus_der_Steiermark

Rationally speaking, the ETF pays out just 1.5% per year. That is 0.37% per quarter. You then pay ~28% cest on this 0.37%. So 0.1% of the deposit value. It also depends on the country, in Austria and Switzerland you pay about the same amount on income equivalent to distributions for accumulators as on distributions. And in Germany you pay nothing on the first 1000 euros and then only 70% of the 0.1%?

If the distributions motivate you and you increase your savings rate by 0.5% as a result, you have already gained significantly more than you have lost through the minimal tax advantage.

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Femke@femkelbn

@Erich_aus_der_Steiermark I hadn't thought of it like that before, thank you! That helps me a lot!

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Stulle 🥪@Stullen-Portfolio

The return advantages of the accumulator compared to the distributor may have diminished, dear Femke, but they are still there. 😎

A.
When interest rates are low, the up-front tax for the accumulator is zero; tax is due on the distributed dividends.

B.
If there is no price appreciation in a year, there is no advance tax for the accumulator; tax is due on the dividends distributed.

As a result, I only have accumulators...but I can generally keep my emotions out of investing and follow the theory above...🎯✌️

Greetings
🥪

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Stulle 🥪@Stullen-Portfolio

You can even reverse the psychology, @femkelbn, and enjoy the posts about dividends received by others, because you know that everything remains in your investment and even without having to pay taxes first 😁🚀⚜️

...and yet you know that you can still afford everything that the others use their remaining dividends for...fast food, gym, Netflix, rent...✌️

Greetings
🥪

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Femke@femkelbn

@Stullen-Portfolio Of course you can also look at it that way, it sounds completely different. Thanks for your input, I think I'll have to sleep on it for a few more nights. 😵‍💫

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Stulle 🥪@Stullen-Portfolio

@femkelbn
Joah, thinking about it is certainly not wrong...one of the most important things is that you make conscious decisions and are as satisfied as possible with the decisions you make for as long as possible.

It may also help to repeatedly ask yourself why you are investing. Is it about cash in the next 10 years? Or is it more or less seriously about knowing now that there will very, very probably be no pension gap in 30 years' time?

Greetings
🥪

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Novius@Novius

The decision certainly depends on the phase of life and what role the (securities) savings will play in the current or future phase of life and over what time horizon is planned.

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opportunity_seeker_138@opportunity_seeker_138

One aspect pro Dist is still missing: we live in the here and now and "what you have is what you have" - namely, above all, already taxed at the current withholding tax rate. Who knows what the future holds?

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Ales@income_magician_1423

For mentioned horizon, I would definitely go to acc.

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SGP@Koenigmidas

Depends on the etf

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Femke@femkelbn

@Koenigmidas Can you explain your comment in more detail?

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SGP@Koenigmidas

@femkelbn this is how i handle it money market etfs are accumulating all other etfs i own are distributing. Everyone has to decide for themselves whether it makes sense to do it this way... what do you prefer, regular payouts or growth end positions?

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Pedro M.@serkeftin

For me in principle it depends purely on tax factor or actually or how much you want to handle them...
For me I'm clear on it because it's not more than mid-term investment, even in some cases could be short-term, so really I want to get that money back somehow as soon as possible and I have no problem paying the taxes and I think I can even reinvest the dividends in something completely different, maybe in some other stocks with high dividend yield.
But the other position on the long-term, for those that don't want to pay taxes along the way the ACC will be better I guess.

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X Nguyen@ngoog

I don't think the difference will break your neck in 40 years, as long as you stick with it. That's why I would just listen to your gut feeling

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Lum0k@Lum0k

I do a mixture :)
One acwi as an accumulator and then two or three more distributing Etfs.

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Pascal W.@pwasbeer

D. Is better for income, acc better for growth

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Kevin E.@KevinE

I need distributions. I'm relatively ambitious when it comes to saving (about 60% of my net income, plus the tax refund).

It's nice for me to know that I can simply suspend my savings plans if I'm on ALG1 or sick pay and still have my full salary. In bad stock market phases, I would do my utmost to actively sell out of the portfolio.

That said, I personally invest in dividend (growth) stocks such as Microsoft, Mastercard, Broadcom, etc. - The question of accumulators or distributors doesn't even arise.

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Femke@femkelbn

@KevinE To what extent does it make a significant difference whether sales are made in good or bad market phases? Wouldn't it even be a good thing in bad market phases if the loss offset pot were to be filled and offset against subsequent sales at a profit?

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Kevin E.@KevinE

@femkelbn My strategy does not involve any sales at all. I only sell if I no longer believe in the company's business model or if I think the management is disastrous.

As my dividends grow by around 12% p.a. (plus what I buy back), this is sufficient for me. I assume 8% after inflation - in my case this means that in 2029 I will receive roughly double the dividend (adjusted for inflation) of today, in 2033 triple, in 2037 five times, in 2045 ten times.

Selling would mean that I would have to pay tax on the sometimes quite large gains on the shares and reinvest significantly less money. I'm trying to avoid that.

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Philip Buß@GoldenShield

It also depends on what other investment income you have. In my opinion, you should definitely make use of your tax-free allowance

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Femke@femkelbn

@GoldenShield That's true, of course, although that wouldn't be a problem. You could always do this at the end of the year with partial sales, which are even easier to plan than changing dividends.

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Philip Buß@GoldenShield

@femkelbn That's true, but I wouldn't make any partial sales of ETFs. But that's more of a psychological thing for me. I would also tend to choose ETFs that pay out dividends

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Femke@femkelbn

@GoldenShield Thank you for your opinion, I think this psychological effect is an important point in order to "hold out" better over such a long investment period. Even if this means a slight loss of return in the end.

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Thom@hunter_7777

I think everyone who is inclined towards dividend payers knows the pros and cons, especially with regard to the return/psycho aspect. But since I'm not a youngster either and this motivates me, I'm Team Dividend ETF

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JM@jm_finance

I also only have the distributing versions of ETFs, which motivates me and suits me so far.... 😊👍

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