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

No. Again an example of tailoring @Pier1's plan to suit the individual.

i don't usually participate. There's often better opportunity to buy on market.

Generally as much as I can afford up to the maximum $15k limit if it's a good deal. Might go less if I feel I want to allocate funds to another LIC.

Like Thornhill I don't believe in asset allocation but do hold around 12% International and cash as a buffer for liquidity, to meet minimum Super pension payments, potential emergency expenses and opportunistic buying. Essentially a "Two Bucket Approach".

When I was chatting to Thornhill awhile back we discussed a SPP strategy for the greedy:

Hold a token amount of favourite LICs who offer SPPs in other entities just for SPP that are a great deal eg husband and wife but SMSF the destination majority holder. All three take up a heavily discounted SPP for total of $45k, obviously no broker fee. The SMSF then buys the SPP shares immediately upon issue from husband and wife. Practically this would simply be an in-specie transfer of shares in husband and wife's name to SMSF. It's not a contribution so doesn't affect caps and shares are allowed under related party rules. SMSF pays them accordingly. Some brokers charge nothing or a small charge for the transfer(s). End result, SMSF gets a combined SPP for $45k with no / minimal transaction fee! All in a no / low tax environment.

I imagine you could do simililar with a Family Trust as the buyer or seller.

Not advice.

 

Awesome, I thought of holding in multiple names, never thought to take that next step. Something to add to the memory bank.

 

But asset allocation is simply how your money is spread among different asset classes?

 

Not in Thornhill's case (and possibly ours eventually), he is 100% shares. The cash buffer is equivllent to 2 years living expenses. But he has conservative gearing outside of Super invested in shares greater than the size of the cash buffer. So this equates to 100% plus shares.

He and his wife hold a smaller allocation of UK LICs but this is a result of having worked in the U.K. rather than deliberate planning. I imagine if they hadn't worked over there they would be 100% Aussie Industrials / LICs dividend payers.

In our case cash is not a set asset class allocation. And Bonds will never be in the portfolio. Cash is just enough to meet 2 - 3 years living expenses / emergency expenses / dry powder for buying opportunities. As for our overseas investments I consider them a mistake having gotten suckered into it. In hindsight I should have stuck with my original plan of investing in Aussie shares / LICs for their juicy dividends.

If Australia ever reaches a point where we can't live off the dividends then I think there will be much greater things to worry about than our investment performance.

 

This is one thing I would like to ask Peter if I ever get the chance, as it's still not that clear to me why he wouldn't be a fan of some level of international shares. Is it just because of the lack of franking?

Because if it's simply to do with the yield in Australia being the highest starting yield, doesn't he cover that in one of his videos and labels it "the yield trap"? I'd guess some of the UK LICs he owns have grown their income at a higher rate than the ASX would have over the last ten or so years.

I guess I don't see why one wouldn't include some, in case another stock market delivers better dividend growth. I understand why a dividend investor wouldn't like the US market of course.

I think if I had already reached my income goals I would definitely feel the same. But for me as an accumulator it's not that I would be worried about them not paying dividends, so much as potentially getting a better long term dividend growth elsewhere.

Anyway perhaps ill put this in an email to him one day

 

Hi @BingoMaster,

Ah yes the catch-cry of fund Mgrs, "Australia for income, international for growth". International funds have proliferated during the last decade in Australia. No vested interests there of course. Where were they all a decade before that when it was "Australia for growth, International for ???"?

As if growth doesn't exist at all in Australia. Take two of Thornhill's favourite holdings:




No growth anywhere they say!

The Industrials index doesn't totally consist of high yield, no growth shares. There is plenty of growth stuff in there also. CSL is a classic case of why not to focus on current high yield only, the so called yield trap.

And the local market has exposure to International markets through the likes of CSL, MQG etc.

Oh and then there's a big free kick from franking credits with many Industrials, and minimal overall currency risk.

But good questions for those who will be attending future Thornhill courses or wish to email him directly:

1. Does he believe in International diversification assuming he hadn't worked in the U.K. and have citizenship there?
2. How has he managed to average 15% pa (sounds like growth to me) over 16 years in his SMSF? Is it solely to do with avoiding Resources and Areits? Does that include franking?

@BingoMaster I strongly suggest you email Peter with these questions and more as he's highly likely to answer it. But please let us know the answers. Who knows, maybe I wasn't listening properly and I've got it all wrong.

Whilst no one knows the future if it's anything like the past (as shown below) when it comes to dividend investing in Australia then I think we can manage:


Cheers

 

Great post @ErYan very valid points and more to consider. I tend to agree on the small/mids as well and would probably stick to LIC's for this exposure, although I am not planning of having a huge portion of my funds in these companies anyway. Something I need to look into further.

 

Bump
Where it all began. Ahhhhh those were the days.

 

Excluding the use property equity / loc, how many of you leverage into lic and at what sorta lvr?

 

None. But I'm retired so unlikely to add anything of value to the question.

 

I don't use leverage outside of property.

 

Are you looking for others' comments on other avenues to optimise exposure into this field?

Other reasons for asking? (not probing, just looking for a basis for others to provide comment).

I would use property (at a safe level based on my risk profile) to leverage into LICs/ETFs after much research.

 

None.

I have thought about taking on 30% during the next huge market crash. Don't think I could sleep with even that during a crash however.

 

I'm only using leverage secured by property. At least until banks start offering mortgage level rates on non-callable margin loans...

 

Meant to add I only use leverage against one remaining IP and PPOR to purchase shares in times of gloom. 20% LVR is my conservative maximum. I try to repay the debt over the subsequent 3 - 10 years so the LOC(s) are fully loaded for the next major period of gloom.

 

There is no product like this yet buy there could be in the future. It would take some changes to how shares are titled but it's not impossible. Something interesting is that a house can be in negative equity and the bank won't usually call the loan in but when shares go into negative equity they usually would.

The easiest way to get around this for now is to use property as security for the loan.

 

Interesting thread & thanks to @austing for getting it going....

A beginners question: If you wanted to generate a net passive income of say, $18,000 /yr, (for someone with zero income for tax calculation purposes) then what quanta of about 5 longterm & stable LICs would be required in investment dollar terms?

I believe it would be about $250K..... is this about right?

 

325k

 

280k if the return is 4.5%, which is 6.42% grossed up.

 

With Franking Credits taken into account?