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Anonymous
In a dilemma on whether to choose one out of the other. Will I be getting dividends if I chose an accumulating etf or a distributing etf a better choice. Seeking your advice. Thanks
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thefrugalstudent
06 Jul 2021
Founder at thefrugalstudent.com
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Dividends are paid out by the underlying stocks regardless of accumulating or distributing ETF. Difference is whether you see the dividends in your cash account.
Only distributing ETFs will pay out to your account. Accumulating ETFs will reinvest the dividends automatically.
Which is better depends on what you want to achieve. If you want income then distributing. If you want compounding then accumulating. Or have a mix.
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Accumulating
Reason:
1) it affect the growth of your ETF. Dividend generate by selling portion of ...
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Hi Anon,
In an ideal world, there's no difference in performance between an Acc and Dist ETF if they are otherwise identical. In the real world, which one you should choose depends on your phase of life and investment goals, which are often synonymous.
If you're looking to accumulate wealth, acc ETFs are better. This is because instead of paying out dividends, they are automatically reinvested into the fund, speeding up the process of compounding. Even though you can reinvest the dividends manually if you use a dist ETF, if the dividend amount you receive is small, it may not be possible to reinvest these dividends efficiently, given that broker fees will be incurred + you need to meet the minimum lot size.
If you're looking to enjoy your wealth, dist ETFs would be better. This is because your main concern would be to have an income stream rather than to grow your wealth. Having dividends paid to you can help to provide this income stream, while if you're only using acc ETFs, the only way to generate income is to sell shares, which incurs broker fees.
I elaborated more on this topic in a post on my blog, you can check it out if you're interested!
https://www.thefrugalstudent.com/etf-investing-...
Hope this helps!
Regards,
thefrugalstudent