Dividends - reinvest automatically or hold as cash?

[bitchstewie]

Nothing special, just dividends on an assortment of investment trusts and OEICs.

The platform is HL so reinvesting automatically is cheaper for investment trusts than taking cash and then deciding what to do.

OEIC dealing is free so arguably it makes no difference other than I think you can invest less with dividends than if you wanted to make a regular purchase.

I know there isn't a right answer to this one so I'm just asking what people do and their reasons for doing so.

[trowelhead]

I always buy ACC funds so automatically reinvests.

Read this earlier re income funds - quite interesting:
https://www.ft.com/content/75eefe82-c4d4-11e8-ae3e...

[Skyedriver]

bhstewie said:

Nothing special, just dividends on an assortment of investment trusts and OEICs.

The platform is HL so reinvesting automatically is cheaper for investment trusts than taking cash and then deciding what to do.

OEIC dealing is free so arguably it makes no difference other than I think you can invest less with dividends than if you wanted to make a regular purchase.

I know there isn't a right answer to this one so I'm just asking what people do and their reasons for doing so.

Tend to take the dividends as cash to think about and reinvest as I feel BUT I'm now retired and want to collect the dividends as pension. Hadn't realised there was a financial implication to not auto reinvesting. (Which I used to do but often wondered about reinvesting tiny amounts and the fees involved)

[bitchstewie]

I think the only financial implication, at least on Hargreaves Lansdown, is fees as their automatic reinvestment of shares & Investment Trusts is charged at a lower fee than if you horde the money then make a trade at regular fees.

Of course other platforms may work differently.

[bitchstewie]

Any more thoughts on this one?

[anonymous-user]

bhstewie said:

Any more thoughts on this one?

Tax

Unless you're in a SIPP or ISA, income tax is payable each year on the notional dividends rolled up into accumulation units. All fine and dandy.

However, when you eventually sell it can be a right pantomime trying to work out the "cost" of your Acc units. That's because your base value consists of what you paid (after equalisation) PLUS all the little dividends that have been reinvested. Without excellent record keeping there's a risk you could end up paying CGT that you don't owe...

[bitchstewie]

Hmm are we talking about different things?

I understand ACC v INC.

I'm querying with INC and Investment Trusts and other distributing investments whether people tick the "automatically reinvest dividends" box on their platform, or just let it sit in their account as "cash" and then decide what to do with it?

[anonymous-user]

bhstewie said:

I'm querying with INC and Investment Trusts and other distributing investments whether people tick the "automatically reinvest dividends" box on their platform, or just let it sit in their account as "cash" and then decide what to do with it?

Buying an Inc fund for automatic dividend reinvestment seems a bit of a waste of time when you can just buy the Acc fund instead. See Trowelhead's post no. 2 in this thread. I recognise, however, that you can turn the reinvestment on or off at will.

If you buy an Inc fund for automatic reinvestment you effectively give yourself the same "CGT base value" pantomime as buying an Acc fund. When you come to sell you need to add up all the little "buys" and add them to the original cost in order to ascertain your base value.

As previously mentioned, none of this matters within ISA or SIPP.