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

Discussion in 'Shares & Funds' started by Nodrog, 21st Jan, 2017.

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  1. Snowball

    Snowball Well-Known Member

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    It's a huge mental barrier for everyone to break through, thinking how volatile the sharemarket is.

    Just get them to focus only on the income, that is they are receiving dividends instead of rent! That seems to be a good way of getting peoples head around it.

    Just that there is no expenses so that income is much higher :)
     
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  2. Snowball

    Snowball Well-Known Member

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    Also they don't get their property valued everyday so tell them they can check the value of their shares every 10 years ;)
     
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  3. Snowball

    Snowball Well-Known Member

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    Awesome job austing it's almost a book now! Mayb best not to open the property vs shares can of worms inside the lic guide ;) Might create too many what if scenarios
     
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  4. pippen

    pippen Well-Known Member

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    Yeah great job @austing, maybe a new thread on ways people have been brought up in terms of being frugal, spending less than you earn, borrowing less than you can afford as well as investing and or saving/budgeting tips or lessons implemented or passed on from generation to generation etc etc could be a topic for a thread!

    I personally love reading success stories and having the books millionaire next door as well as stop acting rich by Dr Charles Stanley have really helped set me up in my future investing ways in addition to the invaluable lessons taught from my European parents! Just wished they got some shares back in the day and left them in the bottom drawer!
     
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  5. Snowball

    Snowball Well-Known Member

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    Good idea pippen, I love reading that stuff too! I'm actually thinking of starting a blog this year sometime about early retirement an simple investing. Doesn't seem much of that stuff in aus that aren't trying to sell something.
     
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  6. Snowball

    Snowball Well-Known Member

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    Especially since early retirement is much more about attitude and saving than magical investments
     
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  7. Nodrog

    Nodrog Well-Known Member

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    Yeah anything that you can find on how to retire early please let me know. It would be great to retire early. Wait a minute, I am retired:D. Doesn't feel like it though, wife keeps giving me projects to do:eek:. Yesterday it was turning the chicken's playpen into a chicken tractor. Glad I remembered my skills from when I made go-carts as a kid:rolleyes:.

    Blogs seem to be getting like bums nowadays, everyone's got one:). I enjoy reading some of them but can't keep up with them.

    That said I reckon you'd make a good blogger @Snowball based on your posts here. @OscarBravo has one and writes some good stuff on dividend investing.

    Home - The Australian Dividend Investor

    I've never forgiven him though for deleting my comment there on what would Thornhill say about him investing in property:D:D.

    Maybe instead of posting here I should have started a blog o_O. Nah, I'm too boring:(. And trouble is I'd end up mostly talking about home brew:cool:.
     
    Last edited: 25th Jan, 2017
  8. pippen

    pippen Well-Known Member

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    Even if it's not a blog just users here in pc talking about their strategies, saving rates, how they allocate monies for household expenses (bucket accounts) how they allocate monies for play and fun as well as longer term car, household appliance replacement etc etc. I have always enjoyed reading different people's ideas views and opinions on the subject and I know that is boring but I figure a few others would be in my boat too!
     
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  9. Perthguy

    Perthguy Well-Known Member

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    My parents. They have bought a house in Elizabeth somewhere for ~110k because it is rented for $200pw. That's only $10,400 per year and it quickly starts to disappear once they deduct rates ~$1,300 pa, landlord insurance, building insurance, property management fees and land tax. It doesn't seem there will be much left.

    They could, for example, invest in a dividend focussed LIC. I don't know what the return would be but I know the management fees are a lot less that $1,300 pa! :D

    Since this is a LIC thread, I would be interested to know how to calculate the return on $110k invested in a dividend focussed LIC. Any hints please?
     
  10. ooneil

    ooneil Member

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    This is from one of the large local research houses.

    Capture.JPG
     
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  11. Perthguy

    Perthguy Well-Known Member

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    As an example, today ASX:MLT is trading at $4.43 per share.

    For dividends in 2016,

    - the interim in March 2016 was 8.7cps
    - the final in Sept 2016 was 9.9cps

    does this mean the total dividend payments for the year was 18.6 cps?

    In that case, at $4.43 per share, 110k would buy around 24,830 shares. At 18.6 cps, the total dividend payments for 2016 would have been $4,618?

    Have I calculated that correctly?
     
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  12. pippen

    pippen Well-Known Member

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    Also chuck in another 2k for franking credits too!
     
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  13. Perthguy

    Perthguy Well-Known Member

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    Good point. Thank you. It's for my parents, who are retired and basically have no income. To confirm, the ASX:MLT dividends are fully franked? That would make MLT a lot more attractive IMO than a dodgy house in the 'Liz.
     
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  14. pippen

    pippen Well-Known Member

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    Yep Milton among the other old school lic's are fully franked dividends! No leaking tap issues!
     
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  15. Anne11

    Anne11 Well-Known Member

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    Yes you are correct. Grossed up dividend would be $6,598 and then you pay tax based on your tax bracket. 6.2% grossed yield
     
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  16. steveo

    steveo Member

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    Hi All, so much great content being openly shared by everyone. A big thank you to all the contributors, especially @austing for putting it together and being so generous with his time.

    As this is all very new to me my question is. If we look at the weighting of the older 3 LIC's for example... AFI, ARG, & MLT, they are all very similar to each other but also similar (correct me if I'm wrong) to holding a ETF like ASX 200/300. If one is keeping things simple does it make sense just to DCA into an index ETF with no extra management fees instead of monitoring up to 3 LIC'S and trying to buy at NTA discounts? Thanks in advance
     
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  17. Pier1

    Pier1 Well-Known Member

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    This is an awesome question, great to see so many people using critical thinking when considering their investments.
    Personally I have found the best way to confirm a theory in my mind is to research it. While it is great to ask questions, and the likes of @austing and others are more than generous with their time in responding, nothing will beat personal research to build confidence in YOUR plan. Because no matter what anyone here says it has to be your plan for YOU to be able to commit to it and follow it.
    Would love to see your comparisons between the 3 LIC and the 1 ETF you mentioned @stevo.
     
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  18. Nodrog

    Nodrog Well-Known Member

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    Would be great if others here can continue to answer some of these questions. Some members have been reading this stuff for quite awhile now. Finding time is getting harder for me. Overtime I'd prefer my input to be less and less. I'd love nothing more to see others new to LICs eventually surpass my level of knowledge (not that hard) and in comparison be able to make me sound like the amateur that I am:).

    And as usual @Pier1 who possesses wisdom in spades is right. Would be even better if newcomers had a go at answering their own questions then write their answers here for others to comment on. No better way to learn and develop faith in your own plan.

    I am however keeping a list of questions as they arise and any answers to continue to add to the FAQ. I'm trying to keep the LIC Guide focused on long term investing though and avoid getting into higher risk trading / activist strategies.

    I knew eventually the question on ETFs would pop up. A comparison between these would be a good addition. In the guide I compared in a very general manner LICs vs Managed Funds because more are familiar with MFs. But that is changing with the increasing popularity of ETFs.

    Questions I've got on my FAQ list to do:
    1. Why own multiple similar LICs?
    2. Why do some established LICs tend to trade at a discount most of the time?
    3. When looking to buy a discounted LIC should I check NTA historical average?
    4. LICs vs ETFs?
    5. What are Rights / Bonus Issues?
    6. DRP vs Bonus Share Plan?
    7. Should I participate in new LIC IPOs and problems with Bonus Options?

    Cheers
     
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  19. Snowball

    Snowball Well-Known Member

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    One thing to remember is that fees charged are a 'percentage' of money invested, not a standard fee.
    So having your money spread across 3-4 lics is no more expensive than 1 lic or etf. Also remember that the old lics typically charge around 0.15% whereas it think vas etf is around 0.25% fees.

    I much prefer the lics as they pay the same reliable dividends each year which increase with company profits. Etfs do also much it's much less consistent with dividends being quite lumpy, some payments more than others.

    It would even out over time but I prefer the predictability.

    Also the etfs are in the form of a trust. So they have to pay out all earnings, even capital gains from sales or rebalancing, so you receive payments for gains which results in some tax to pay. The lics can retain earnings and don't have to pay these out so can invest any excess funds into opportunities they see at the time.

    I wouldn't really monitor them just buy when you have money and whichever is at a discount if possible. Wouldn't matter too much either it will even out overtime if bought sometimes at a premium an sometimes at discount and continuing to put even amounts in each

    Also they don't have to own everything in the index which means they try to avoid some crap. This has proven to give a slight outperformance over index over time even after fees.

    After weighing up the pros and cons I'm much happier with the lics.

    No need to own more than one if keeping simple as possible, but there are benefits being discount opportunities and further diversification between managers.

    Whichever one you feel more comfortable with is the right one to go with!

    No 1 - Just save and invest.
    No 2 - Collect dividends, buy more.
    No 3 - Back to step one :D
     
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  20. Pier1

    Pier1 Well-Known Member

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    No 1 - Just save and invest.
    No 2 - Collect dividends, buy more.
    No 3 - Back to step one :D
    More gold right there.

    Further to previous comments, spreadsheets and plans for optimizing when to purchase etc. will not put the dividends into your bank account. :D
    Sure don't be silly about it, buy the LIC which offers the best value for sure, which is why some here have suggested having a few on your watch list.
    Buy the one which you are comfortable with which offers the best bang for your buck.
    Personally don't spend too much time worrying about NTA, not saying I don't look at them, but I don't waste too much time on them.
    Moral of the story, do your own research (DYOR)
    Spend less than you earn,
    Borrow less than you can,
    Select your chosen LIC/s of choice,
    Buy what you can when you can,
    Reinvest all the dividends,
    Participate in SPP where offered,
    Pin the ears back buying when the market collapses,
    Never sell :)
     
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