Personal Finance & Money Asked by foo on January 7, 2021
Take those two for instance:
They collect dividends from the underlying stocks for a whole year and pay out once a year. What happens to the dividends collected throughout the year, are they being reinvested until being paid out, or does Vanguard holds onto the cash for the whole period? Or does the answer lie somewhere in between (explaining the various dates: ex-dividend, record, payable).
I am aware of accumulation funds but this question is specifically about how income/distributing funds handle dividends throughout the year.
They are reinvested. I can say this with confidence by making one observation.
Take the Vanguard S&P 500 ETF. For the fact that it tracks the total return of the S&P 100% (less the tiny expense) would prove this. In a year the S&P is up say 20% total return. By year end, 2% of that 20% (I mean 18% came from the index growth, and 2% from div) was from the dividends. Had the dividends been set aside, they would have seen growth of cash or treasuries. And the lag of the fund's total return by year end would have been noticeable.
Correct answer by JTP - Apologise to Monica on January 7, 2021
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