T, IBM, ABBV, KO, PEP, BMY: all above 3% - though I do not have specify dividend pie, just “US 1”, “US 2”, “US 3” each of which contains a mix of dividend payers and growth stocks.
I have a monthly dividend pie and three quarterly pattern pies, which I want to put all 4 into a single dividend pie (so a pie of 4 pies), but the contents are:
Main, o, land(the American one not landsec), VGOV, semb, LTC, psec, agnc, sths, pba, sjr
Gsk, jpm, kmb, csco, fdx
Aapl, vz, abbv, Pg, cl
Jnj, mmm, mcd, cvx, wba
I need to clean up but I’m waiting to see how many drop their dividends completely before making any real changes. 🤷
Two pies for now:
- EQQQ 30%,
- IUSA 20%,
- UKDV 20%,
- USDV 20,
- ESX1 10% (ESX1 is accumulating)
Want to add SPYW later when it is fractional
- O 45%,
- MAIN 30%,
- DX 25%
Just a comment on high dividend ETFs. A high dividend ETF invested in US shares in an account subject to UK dividend tax is very inefficient for a UK investor compared to owning the constituent companies directly. Tax rate is 15% US tax plus the UK tax, rather than 15% US tax, but with this deductible against the UK tax. Net income from 100 gross of dividends is greater by 6.375 (basic rate taxpayer) or 10.25 (higher rate) through owning companies directly, and then there is the ETF fee, eg 0.35% for USDV. If the 100 comes from a stock yielding 5% then that is additional 7 that comes off the 100.
USDV nets after taxes a higher rate taxpayer 50.375 from a constituent US company paying a 100 dividend on a 2000 investment (with 5% yield). Basic rate taxpayer nets 71.625
Owning the US company directly nets after taxes 67.5 (higher rate taxpayer), or 85 (basic rate taxpayer)
I didn’t bother to get involved in the beta, happy to wait for the final product to be released, but seeing your VWRL ex USA emulator, I’m tempted to try to recreate Baillie Gifford American fund - that thing is a beast!
That’s some good information, and since with pies we can effectively recreate some of these ETFs it certainly is worth looking into in more detail.
I suspect for some people the ease of not having to update and rebalance when the ETFs they have based the pie on have changed will beat out the loss of profit from not manually recreating.
I have not read any studies on this, but my suspicion is that rebalancing is overrated. Some say that rebalancing a portfolio is likely to lower your returns, not increase them, since you will be buying more of the companies that have done poorly and may continue that way. Many ETFs rebalance only quarterly. A market-cap index ETF only needs to rebalance for the reason that companies enter the index, fall out, or change their number of issued shares through buy-back or new issues. This happens at the margin. If you are happy with your initial allocation then it should be sufficient to simply buy or sell shares in proportion to the numbers already owned.
You make a very good point. I still believe there will be people who won’t bother, human laziness is only rivaled by human stupidity.
I will be having a look into it and see what gains I can eke out, who knows what my final decision will be though.
I would only rebalance through adding enough funds to get the weightings back not by selling high performing lines to then buy the declining ones. Depending how broad your exposure is some sectors are very cyclical and buying using the balance feature to buy up more when they are down you will benefit more in the long run. But agree shouldn’t be achieved by selling the high flyers.
Hey i was just wondering if you can provide a bit more detail on this. If i am a UK tax payer and i hold a ETF such as S&P500 from Vanguard then vanguard withhold 15% and then i get subjected to 7.5% dividend tax and 32.5% if i am higher rate. I thought in the UK after you have used your free £2000 dividend allowance the US stocks taxation is taken into account and you pay the balance. So if you are basic rate tax payer you pay nothing more than the 15% that has already been withheld and if you are higher rate taxpayer you pay 32.5 - the 15% you already paid? Am i missing something?
The calculations in your penultimate sentence are correct for dividends that are paid directly to you by US companies. However, for ETFs that hold US companies, like VUSA, there is no 15% that can be deducted from your UK tax liability. That is because the 15% US withholding tax was paid by Vanguard before they distributed income to you. At that point it was Vanguard, not you, who was the taxpayer - so you cannot take a foreign tax credit for that US tax.
This is why with an ETF like VUSA there is an element of unavoidable double taxation. A basic rate taxpayer owes 0 on dividends from Apple, but 7.5% on dividends from VUSA, IITU, USDV, etc. Does that make sense?
Ah i see, so would that also apply to other international ETF’s like VFEM and VAPX. I guess it depends if the portfolio countries within those ETF have witholding tax aswell?
That’s right. You always pay UK tax on the full ETF dividend, with no possibility to take a foreign tax credit for dividends that Vanguard has paid. For example, Vanguard will also be paying German withholding tax on German company dividends accruing in VERX. But I think the US situation is the one most egregious and which affects many investors (most of whom do realise this).
This is one reason that it can be preferable to own companies directly. My US portfolio of companies has a yield of 2.79%. By comparison, VUSA pays 1.51%.
So if we are talking about an Invest account it may be better to hold accumulation units of the Vanguard ETF and then the only taxation that would apply is the witholding tax that Vanguard pays where applicable and then CGT on disposal? Or if you want to buy distributing ETF’s to keep them within an ISA?
Unfortunately no. In a taxable account, accumulating ETFs are also taxable each year on the dividends that are retained and rolled up in the fund. You are expected to refer to Vanguard’s web page and find the “excess reportable income” that has been so rolled-up and report it for dividend tax. Expand the tab called “Report to Participants (current and previous years)” at this page
To give an example in the first line we read that Vanguard S&P 500 UCITS ETF USD Accumulating Share (VUAA) had $0.1126 per share of reportable income.
Having paid the dividend tax on $0.1126 per share, via your self assessment tax return, you can increase the basis cost of your units by this amount, as if you had reinvested it, and then there will be less capital gains tax to pay when you come to sell.
This has been discussed in some other posts in this community. Search for “excess reportable income”. There is also information about this on the HMRC website. See also here for a discussion of distributing vs accumulating funds. The key point is that the taxes owed are very much the same.
To make things even harder, you might think that distributing ETFs are easier because then you only pay tax on the dividends you receive. However, these can also have “excess reportable income”, albeit smaller amounts than their accumulating siblings. Vanguard does not actually distribute 100% of the income. So with either type of ETF you will need to look up the income on the Vanguard (or other provider’s) website, if you are in a taxable account are have dividend income exceeding the annual tax free allowance.
A lot more complicated than I first thought. My invest account has some individual US Stocks and three international ETF’s. I’ll have to just think about this some more.
Thankyou for the links to the other threads., i appreciate it!
This is my first pie, only stocks.
This one is made by ETFs, just two to take it simple.
What do you think about it?
Also, I’m studying if it’s better to buy only on Mondays, or the same amount, every day, but obviously divided by 5.
I prefer to buy only on Wednesday.
Here is my trash pie:
It performs as its name suggests.
Some actual pies that I use are:
Why on Wednesday? I like them, the only think I don’t like too much is the fact that the calculator makes me think that I will do some fantastic performances, but it seems so improbable to me…
There isn’t a huge difference on the day but I find that Monday and Friday can be quite volatile, so I like Wednesday.