1Settimana·

Distributing or accumulating?

Until a few days ago, I was very sure that after my restart I would switch from the distributing $VWRL (-1,31%) into the accumulating $VWCE (-0,09%) 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?

38 Commenti

Mr.WealthCreator@STVM

1Settimana

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

1Settimana

@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

1Settimana

@Tobi60 This is the way 💪🏻👍🏻

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Tobi60@Tobi60

1Settimana

@STVM Mandalorians among themselves 🫡

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Mav83!@Maverick4831

1Settimana

@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

1Settimana

@STVM well, there are still various withdrawal strategies

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Stefan@Da_Fischi

1Settimana

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

1Settimana

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

1Settimana

Distributing team. You have given reasons

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Cekay@CMustermann

1Settimana

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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Stulle 🥪@Stullen-Portfolio

1Settimana

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

1Settimana

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

1Settimana

@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

1Settimana

@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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Erich K.@Erich_aus_der_Steiermark

1Settimana

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

1Settimana

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

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Novius@Novius

1Settimana

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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X Nguyen@ngoog

1Settimana

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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opportunity_seeker_138@opportunity_seeker_138

1Settimana

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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Pedi@Pedi

1Settimana

@opportunity_seeker_138 Taxes could go down 😅. However, it should be noted that you don't know this, the 2018 reform does not affect old investments with grandfathering. These are tax-free up to 100k, I believe.

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Ales@income_magician_1423

1Settimana

For mentioned horizon, I would definitely go to acc.

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SGP@Koenigmidas

1Settimana

Depends on the etf

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Femke@femkelbn

1Settimana

@Koenigmidas Can you explain your comment in more detail?

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SGP@Koenigmidas

1Settimana

@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

1Settimana

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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Lum0k@Lum0k

1Settimana

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

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Pascal W.@pwasbeer

1Settimana

D. Is better for income, acc better for growth

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Kevin E.@KevinE

1Settimana

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

1Settimana

@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

1Settimana

@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

1Settimana

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

1Settimana

@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

1Settimana

@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

1Settimana

@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@Depot_7777

1Settimana

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

1Settimana

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

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Pedi@Pedi

1Settimana

I am clearly an accumulation investor because my investment horizon is 40 years. Accumulation creates a much stronger compound interest effect. If you do this consistently over decades, you will simply have built up more assets at the end of the savings phase.
In the withdrawal phase, you should not sell everything at once or blindly reallocate. It makes more sense to follow a clear strategy, for example the 4% rule, which allows you to withdraw a fixed percentage each year and preserve your capital for as long as possible.

When selling, I would not start with the oldest shares, but get rid of the most recently purchased ones first. This way, the ones with the greatest increase in value remain in the portfolio for longer, which can be advantageous from a tax perspective, especially for old holdings from before 2018.
Or if there are changes to the law in the future, your ETF could also fall under grandfathering again, and that would certainly not be a negative development (LIFO principle).

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𝒻𝓇𝓊𝑔𝒶𝓁 𝒻𝓇𝑒𝒾 𝓈𝑒𝒾𝓃 🗽@frugalfreisein

1Settimana

@femkelbn
I am clearly a dividend-paying team. Of course I also have a few shares that don't pay dividends, but otherwise all of them and the ETFs generally pay dividends.

You've already mentioned the psychological aspect. And the upfront lump sum for ETFs bothers me because it makes things more complicated. Incidentally, I also pay some capital gains tax on the advance lump sum for my $VUSA ETF, for example.

I also want to decide for myself what I reinvest in.

And many people completely misjudge the most important argument. I want the cash flow, because the cash flow is supposed to cover my living expenses. If I only use accumulators now, I would have to switch at some point, because I never want to sell again! But that would trigger the worst tax cases in several decades, which would be absolutely sick.
That's why I use distributors. I'm not interested in whether I have a portfolio volume of 800K or 1.5M. I'm interested in the amount of cash flow. This is crucial, as it has to cover most of my expenses even in the weak months.

Also think about what it would be like to have an accumulating ETF portfolio of maybe 1 million, and then there's the upfront lump sum. To pay that, you have to bring in your income or sell it. Not great.

And yes, I'm currently using the dividend stream tactically. In my main share portfolio, I use it to completely feed small savings plans and also top up the savings plans for the weaker shares.
In my old portfolios, the dividends simply add to the positions and could theoretically be used to further increase the nest egg.
In my crypto follow-on portfolio, I invest the profits from the crypto sales in dividends. This is how I generate a cash flow. As soon as crypto is deep in the crypto winter/bear market again or it starts, I will use the cash flow to build up new crypto positions. Without having to use my net salary for this.
And in my main ETF portfolio, I'm planning to get to grips with the topic of securities lending in the near future. The dividends from this portfolio should then also help to cover the interest in full, so that the money will be virtually free money for me.
You can also use dividends for something nice, I also donate something in the very strong months.

All these strategies would not be possible with accumulators, as I would have to actively reduce the capital stock all the time, which I don't want to do.

That's why I use distributors! Sch**** on the tax, we just pay it to have our freedom and be able to invest how we want. By the way, there is also the favorable tax treatment, which can reduce your tax burden.

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