Don’t understand my Vanguard account

Investing
#1

Hi all,

I’ve started investing through Vanguard but I don’t understand how it makes money.

I understand that over time stocks go up but I don’t understand how I actually make any interest on my accounts in order for compound interest to come into play.

I am in the UK and I’m mainly investing into Vanguard Lifestrategy 80 accumulation so I’m led to believe that doesn’t pay dividends and therefore I don’t understand where the whole concept of compound interest comes in? Is there not a point in the year where any of the interest is realised?

I’m good with saving my money but math is not my strong point - I’m really trying to make my money work for me and I think I’m doing the the right thing planning on investing regularly for a long period of time but not understanding it is making me feel disheartened.

Thanks!

#2

I wasn’t familiar with this particular fund (as I’m US based), but here’s a brief description from Vanguard:

“The Fund seeks to hold investments that will pay out money and increase in value through a portfolio comprising approximately 80% shares and 20% bonds and other similar fixed income investments.”

For the specific share class you mentioned (“Accumulation”), it does NOT distribute dividends, but rather reinvests them:

“Accumulation share class reinvests its dividends.”

So, to answer your question directly: if you’ve invested your money in this asset and then never did anything else with it, you wouldn’t ever see any gain or distribution directly from the ownership.

The way you make money in this case is through the appreciation of the underlying shares and then selling some portion of those shares (with that appreciation baked in) at some point in the future.

Compound interest doesn’t really apply to appreciation of shares in a strict sense, compound interest is more related to interest-bearing assets like debt/savings accounts.

In general, as an individual investor, you’re concerned more about the total value of your assets—not necessarily how you come to that value (appreciation, dividends, interest, etc.).

Per Vanguard’s site, it seems that $10K invested in that underlying fund (VASGX) 10 years ago would be worth about $22.5K today.

Hopefully that at least starts you down the right path! :slight_smile: