I am trying to decide between investing in a distributing ETF or an accumulating ETF and to me the distributing ETF seems clearly to be the better option. Since so many people invest also in accumulating ones, that makes me think that I might be missing something here. So I figured I better ask here first:) Here is what makes me think that the distributing ETFs are superior to accumulating ones:
In the country I live in (Germany), the tax law is set up in such a way that in both distributing and accumulating ETFs you pay exactly the same capital gains tax on the gains made via the dividends. However, when you want to take some cash out of your account (and that will happen at some point either at retirement or earlier - otherwise what is the point in investing) then there does a significant difference occur. Let me compare the two using a concrete scenario.
Accumulating Scenario: Suppose that you invest 50k to an accumulating ETF today and 10 years later it becomes worth 100k. Now if you want to withdraw 2k from your account at the 11.year then you'll have to sell some shares and pay capital gains tax for the profit you made in that trade (which is 1k, as your ETF has doubled in value). In Germany, that tax would be around ~200.
Distributing Scenario: This time you invest 50k to a distributing ETF and whenever you receive a dividend payment you invest all of it back to the fund (for simplicity assume that your brokerage account does not charge you anything for these share purchases). Since (as pointed out above) for dividends there is no difference in tax in either ETF type, after 10 years your portfolio is again worth 100k. Now if you want to withdraw 2k as before, (assuming that your ETF has a dividend yield 2%) you can just get it from dividend payments throughout the year. As you did not have to sell any shares in this scenario, you don't suffer the capital gains tax, which was ~200 in the prev scenario.
Am I missing something here?