Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

Income, accumulation and other unitisation questions

A helpful place to also put any annual reports etc, of your own portfolios
Newroad
Lemon Quarter
Posts: 1090
Joined: November 23rd, 2019, 4:59 pm
Has thanked: 17 times
Been thanked: 341 times

Income, accumulation and other unitisation questions

#424152

Postby Newroad » July 2nd, 2021, 9:48 am

Morning All.

I've just started unitising my portfolio(s) and think I have it set up more or less right (and have had the first few transactions recorded).

In short, each portfolio is represented by an account at II and includes IT's, ETF's and cash. I am only changing the number of units when I add new cash into the portfolio (i.e. typically by monthly contribution), or take cash out of the portfolio (i.e. by selling something - unlikely at present). I am not counting reinvested dividends, distributions or interest as an addition of units to the portfolio (they only change the value of each existing unit).

The above seems simply to give rise to "units" and if I had to guess of the two "accumulation units". If so, how would "income units" differ?

I may have some more follow on questions for any kind souls prepared to answer them, but that's a starter :)

Regards, Newroad

Urbandreamer
Lemon Quarter
Posts: 3121
Joined: December 7th, 2016, 9:09 pm
Has thanked: 347 times
Been thanked: 1025 times

Re: Income, accumulation and other unitisation questions

#424174

Postby Urbandreamer » July 2nd, 2021, 10:59 am

If I read you right, then I did the same a number of years ago.

The above seems simply to give rise to "units" and if I had to guess of the two "accumulation units". If so, how would "income units" differ?


Well the way that I did it gave rise to the "value" of units if I dont invest, due to reinvested dividends. Units cost more when I invest and the number of units rise due to the investment.

I think this would be akin to an accumulation fund.

Another way is to presume that reinvested dividends are actually new money being invested. Some may argue that is the "wrong" way to do things.

However doing it that way may give a better idea of how a portfolio compounds if and when you can't re-invest the income. This would be more akin to an income fund I think.

I try to model both as at some point I won't be investing earned income but drawing funds to support myself. I'm not total convinced that I have the maths right, but I try.

nmdhqbc
Lemon Slice
Posts: 634
Joined: March 22nd, 2017, 10:17 am
Has thanked: 112 times
Been thanked: 226 times

Re: Income, accumulation and other unitisation questions

#424186

Postby nmdhqbc » July 2nd, 2021, 11:29 am

Yep, looks like you're calculating Acc units. To me it gets more difficult to get my head around inc units. Also you need to collect more data. I think it gets very difficult to communicate this subject with words. I've seen many a misunderstanding on these boards when people try to do that. Here i've given a little over simplified example to try and explain. I really hope it makes sense and is correct. No doubt others will intervene otherwise.

So this portfolio is just a saving account with a 2% interest rate that pays monthly. So monthly that's 2% to the power of (1/12). In the first table the interest is being paid out of the portfolio monthly. So the value of the portfolio stays at £10k. If this was an open ended fund and you held the Acc units you would need to sell some each month to get the cash. So that's what happens here. If it was the Inc units you held you'd just do nothing and the income would be paid to you. The income unit price and the income per unit separates the Acc unit performance into 2 parts. Capital appreciation (none in my example) and income.



In this example the income is kept in the portfolio. Which is like holding an Acc unit of an open ended fund. Or holding an inc unit and buying more units of it with the income it pays out. So here the number of Acc units stays the same and the number of income units rises.



When capital is added or removed from the portfolio the income units are bought or sold the same way as for acc units.

I sweep my dividend income out of my portfolio unitisation monthly like in this example. but open ended funds do it quarterly or twice a year so i guess you could do it less often if you wanted.

If i didn't have so much free time I would probably not bother with it to be honest. The Acc units are much easier to calculate on their own. But it is nice to monitor the portfolios natural dividend increases and Inc unit dividend per unit gives you that. The effects of added capital / reinvested dividends on future dividends are stripped out.

Alaric
Lemon Half
Posts: 6033
Joined: November 5th, 2016, 9:05 am
Has thanked: 20 times
Been thanked: 1398 times

Re: Income, accumulation and other unitisation questions

#424192

Postby Alaric » July 2nd, 2021, 11:42 am

Newroad wrote:In short, each portfolio is represented by an account at II and includes IT's, ETF's and cash.


If you want Income units, you look at the value excluding cash. Every time you reinvest dividend cash, you have to calculate the unit price and adjust the number of units. You also have an extra statistic to calculate, namely dividend per unit. That could be the monthly total of dividends received less charges dividend by the number of units.

Conveniently ii headlines both values, namely portfolio value with cash and portfolio value without.

Newroad
Lemon Quarter
Posts: 1090
Joined: November 23rd, 2019, 4:59 pm
Has thanked: 17 times
Been thanked: 341 times

Re: Income, accumulation and other unitisation questions

#424195

Postby Newroad » July 2nd, 2021, 11:43 am

Thanks to all respondents thus far.

You have confirmed my suscpicions :)

Regards, Newroad

torata
Lemon Slice
Posts: 521
Joined: November 5th, 2016, 1:25 am
Has thanked: 203 times
Been thanked: 210 times

Re: Income, accumulation and other unitisation questions

#424337

Postby torata » July 3rd, 2021, 1:09 am

Newroad wrote:I am only changing the number of units when I add new cash into the portfolio (i.e. typically by monthly contribution), or take cash out of the portfolio (i.e. by selling something - unlikely at present). I am not counting reinvested dividends, distributions or interest as an addition of units to the portfolio (they only change the value of each existing unit).


Yes, that seems to match with my understanding and what I do. Accumulation is additional 'external' or 'my' cash going into or being withdrawn from the actual account. So what happens with 'internal' monies, like dividends, distributions or interest, is ignored. It's the total amount in the account that is measured. Because I live outside the UK and can no longer contribute to my SIPP and ISA, the number of units stays the same, just the value increases or decreases.

torata

Newroad
Lemon Quarter
Posts: 1090
Joined: November 23rd, 2019, 4:59 pm
Has thanked: 17 times
Been thanked: 341 times

Re: Income, accumulation and other unitisation questions

#424789

Postby Newroad » July 4th, 2021, 8:36 pm

Thanks, Torata.

The way I see it, I'm going to have 24 reference points per year: 12 end of month which I simply record for interest, and 12 approximately mid month, when I actually invest any new contributions.

There will be a slightly inaccuracy in the latter, in that the various contributions etc won't come in on the same day each month - and in any case, I propose to do the "change in units" calculation at the end of the day of their investment. However, I don't think this tracking error is likely to be material.

Regards, Newroad


Return to “Portfolio Management & Review”

Who is online

Users browsing this forum: No registered users and 4 guests