Should I choose 'income' or accumulate - vanguard life strategy ?

[housecommon]

Sorry I think this is probably a very basic question but not sure which one to choose. It's the Lifestrategy 60% equity. Thanks!

Obviously best to ask an IFA but it really depends how old you are and what your investment objectives are. Usually income strategies are useful if you're over 55 and able to draw income from the pot. But all the income you do draw will a)be taxed and b) erode the return potential that might be available with accumulation funds. personally I do accumulation on everything as I'm in my 40s.

I am not sure the taxation will be different between "income" or "accumulate" versions of the same fund. Where a fund reports income, if it's held in a taxable account then tax is due, whether the income is distributed or not.

Will you be buying the fund in an ISA, a pension or a taxable account? And if you take the "income" option, will the income get paid into any ISA or pension wrapper, or will it get paid outside of the wrapper, or do you get to choose?

Answers to those questions will help to frame what your options actually are, before you then choose one of them.

Thanks for the replies - I'll try to find answers to those.
I hadn't thought about any of that .
Was just trying to set up as a S&S Isa as a savings option.

(And then I need to work out how to actually set it in the account . My fault - I saw it in the actual description but then can't see it as an option now that I've actually set up the account.)

if it's an ISA, then any income distributed by the fund within the ISA should be tax free, as should be any proceeds of sale within the ISA, but then once you take money out of the ISA you lose the tax benefits and cannot put it back in without using some of your ISA allowance in the year of putting funds back in.
I suspect it doesn't actually matter than much whether you take accumulating or income, provided the income is paid within the ISA wrapper and you pay attention to it and reinvest it to the extent you wish.

Thanks Yankeedad - really useful

I have sent them a question - asking whether the ISA I've set up is set to income or accumulate. It's difficult to tell from the website or documentation.

(It might seem like I'm fussing over a small detail but I'm dealing with life limiting family illness which is causing additional stress and just trying to sort out a few things - but realise I'm not really able to concentrate fully.)

When you are building wealth use the Accumulation type. The unit price then goes up, rather than a dividend being paid out.

When you are needing to take money out, then you could use Income fund, though you can still stay with accumulation and take out money as and when you want.
As it is within the ISA wrapper you do not need to be concerned about tax, as any growth is tax free.

Thanks so much @nannynick

You might as well go with accumulate as you can still take money out anytime as and when you want to anyway.

In my admittedly short time of investing I've already arrived at the conclusion that leaving it alone and allowing it to compound is a load of rubbish and it makes far more sense to periodically skim off and bank the gains, even if you don't need the money.

Thank you @Yants. It was an income one but I have now switched to accumulate.
Thanks everyone for the help.

It does not matter hugely between income and accumulating, but if you plan to regularly withdraw money then I think the income version might be slightly better for you. If you agree with that after reading the following, you could keep what you already have as-is but put new investments into the income version again, and that way you can avoid lots of switching back and forth.

The difference between the two fund structures is that with income, any income paid by the underlying investments (for instance interest and dividends) gets redistributed out of the fund to the holders (possibly within the ISA or pension but as cash), but no underlying investments get sold. Whereas with an accumulating fund, any dividends or interest paid by the underlying investments into the fund get used instead to purchase new investments within the underlying fund, with no cash distributions by the fund.

The difference is subtle, but it means that unless you get the math exactly right regarding how much cash to take out, there is a certain likelihood that you will end up as a net seller of shares at exactly the wrong time (ie when the market is at a lower level) because it takes more shares to get a certain amount of cash.

With an income fund, the fund normally just works out how much cash it can give you without selling any underlying investments, and gives you that amount of cash while holding on to all investments. In the current market environment, in a stocks and shares fund you'd probably get something like 1-2% of the invested principle each year. If the market tanks, the income would probably be more stable than the market, which might also make it easier to avoid panicking and hang on.

I had previously assumed perhaps in error that your plan was to just leave the money in for a number of years, in which case it would not have mattered that much whether you chose income or accumulation.

Do you need an income to
Live on ?
Or are you building up funds to retire.
A simplistic approach will give you the answer.
Choose the type of investment for your lifestyle.

Sorry - I hadn't seen the additional replies. I changed it to accumulate. I'm planning to leave the money there for a few years so that seemed most sensible. Thanks again for all the info.

@housecommon

Thanks for the replies - I'll try to find answers to those. I hadn't thought about any of that . Was just trying to set up as a S&S Isa as a savings option.

Entirely depends if you need the income from dividends . If you need income then you may need to pay income tax if your yield is over £2000 allowance on dividend income per year

If you don’t…then take investment option and reinvest dividend payments directly into funds ( they do this for you). Your funds value will grow quicker. If when you sell your shares, you gain over the capital gain allowance of £12.2 K per year you’ll pay capital gains tax. Currently lower than higher rate income tax.

Alternately put your investments in an ISA and you won’t pay either tax if you go over your annual allowances

Look at estimated income rates in each fund in the vanguard portfolio you choose. It’ll give you an idea of what annual income you’ll receive from dividends. You may see that the income might be low and not make a significant difference to your lifestyle and your therefore more interested in the growth of the fund - in which case reinvest and don’t take income

@MayMorris thank you. I selected accumulate in the end.
Thanks for the help everyone.