LIC & LIT Beginner's Guide to Investing in Listed Investment Companies

I would also be interested in this question as Computershare must be the platform that ARG uses to interact with clients.

I have IAG shares where I also receive updates etc from Computershare.

@sharon , do you use Commsec, NABtrade etc to buy and hold your shares?

 

@Mac Fields - I use Commsec.
I just set it up specifically for this first purchase.
So it's all new to me.

 

Yep, computershare is the share registry where your shares are held. From here you can view holdings update details as well as modify and/or adjust drp info among other features!

Just have your SRN HIN numbers as well as user ID and password in a little notebook or something similar so you don't forget or misplace them not that I have done such a thing!

 

Newbie question, say if I've a choice between buying ARG with a yield of 4.06% or putting the money in the offset for an IP with interest of 4.3%, wouldn't the latter be a better option? This assumes I get no franking credits from buying ARG.

 

if no franking then maybe yes, however with 100% franked the dividend grossed up to 5.8% (4.06/.7) then you are better off buying ARG, plus the difference in capital growth between ARG and your IP needs to be taken into account.

 

Why the difference? The IP is already owned so the owner will benefit from the growth either way. The share price movement should be considered, or dividend growth for a dividend investor.

 

Agree. What growth the IP makes is irrelevant (I'm assuming it's being kept).
What I would do is use that money (that would be in offset) and buy shares.
For the shares to be worthwhile the return of it (price growth plus dividends incl franking) needs to beat the offset rate and it should quite easily. In addition, this represents higher deductible debt as you can claim more interest expense. Winning...

 

@Anne11 is a very knowledgeable poster and is right in her assessment. I personally paid down my PPOR before investing serious money in the sharemarket. I used to put $100 a week into a Platinum managed fund until I realized I was losing a lot to fees, more recent performance and these ridiculous dividends on which I have to pay tax but see no capital gain. But that was all the exposure I had to equities apart from super. Back on topic....

Avoiding the equity market means I might have come out worse in the long run but the 4.3% you pay on your ppor loan is a guaranteed return AND it is with after tax money. What this means is it is actually worth more than 4.3% to you, which should be a consideration.

Just an alternative point of view. Maybe you can use a hybrid approach or read @Terry_w posts about debt recycling.

 

I must admit I focused on paying off my first PPOR before investing but then again I didn't know a lot about investing then (19 years old).

Some obviously think it's a good idea to borrow against the PPOR whilst still in debt. Here's an email extract from Thornhill:

Whether it's an offset a/c or LOC against equity in IP I only tend to borrow to buy shares when they're a bargain. Then try to reduce debt ready for next bargain opportunity. But I'm retired so tend to be pickier and more conservative with my use of leverage.

Mind you even before we both retired more often than not I tended to leave cash accumulate in the IP offset account until very attractive share opportunities arose. I personally don't feel comfortable with debt unless there is a significant margin of safety. Hence why I mostly tend to use debt to buy beaten down quality assets in times of gloom when yields are high.

 

Thanks for the 'loans' diagram again @austing , it's great to be reminded about this diagram.

After reading these forums, and in talking with my broker, I'm becoming more comfortable with an investment loan off the PPoR within suitable LVR limits (I choose loan and offset against LoC, but that's for another thread in the finance section...). I'm more comfortable in that once you have paid down the PPoR debt to a point, a new loan can be drawn up, and I understand it's a back-end process and it doesn't trigger an application process since those funds are essentially yours (my hopeless description here - seek professional advice before implementing).

From this I think I will always have a investment loan with an offset with funds available (from dividend income) for opportunities.

 

My logic is that if the capital growth in the share you invest in is higher than the capital growth with your existing IP, then yes invest in that share will give you better return than putting money in IP offset. If not, leave the fund in offset.
Currently i put our spare cash in the IP offset while waiting for corrections in the share markets.

 

I dont see the capital growth on the IP part of that equation.

Money in offset is effectively earning interest rate plus tax rate (since interest is paid in after tax dollars) whereas in shares is earning dividend plus frank credit.

 

DT: I think it is applicable to PPOR mortgate only where you pay off the mortgate using after tax money, therefore the interest is grossed up using the tax rate, while IP interest rate is treated the same way as grossed up dividend.

Happy to be corrected so i can learn if my logic is wrong. I assess where to allocate capital looking at:

comparing IP interest rate 4.5% vs share with grossed up dividend of say 5% for example, and capital growth for PI is say 3% while share is 2% then i am better off paying into the IP offset than investing in share. In reality though, generally speaking, shares would have higher capital growth than IPs.

 

I am in the same line of thinking as you. In my case, I've already paid off my PPOR, so it's deciding whether to put my money into my IP offset or buy shares/LICs.I didn't think about the capital growth but agree that it's something to consider. My IPs are in Sydney, so can argue that last 3 years would have performed better than sharemarket from CG point of view. Ignoring CG impact, then, for me it's paying the 4.3% IP interest rate vs 4.06% from ARG (for example). I'm on a high tax rate, so franking credits doesn't help. Anyway, happy to hear if I'm missing something.

If there's a big correction in the share market, I would be happy to take the money out from the offset and go into the share market.

 

You missed adding the franking so you would compare 4.3% with 5.8%

 

Franking credits help even on a high income. I think. I can't explain it though sorry. I am not a wiz at franking.

 

Franking Credits » Australian Investors Association

All Australian investors benefit from receiving franking credits.

 

Hi @Anne11 just wanted to add:

- the 4.3% is guaranteed and tax free, the 5.8% is not.
- the interest rates are rock bottom so consider what happens if they increase.

This is a reasonable analysis:
Pay off your mortgage or invest in shares? Which is better? | finder.com.au

 

Good consideration. Listening to the RBA comments, it seems that this year might be fairly uneventful for rates (apart from banks raising outside the RBA movements ), and as long as an investor borrowed an amount where the dividends paid for the interest (bringing them back to square), it could still be ok to start/continue in the shares so you have a base that will start to grow.

Good comments in the finder article. Appreciate the pros and cons of both. I see opportunity cost as a big cost, particularly when I'm sure we're here to grow/maintain wealth. By entering a market, you can at least have the asset base (at any size) working for you, to build on when possible.

Agree that no one knows when the next crash will come, throwing the 1st para comments out the window, but prudent investing will at least start the process.