LIC & LIT Listed Investment Companies (LICs) 2020

That’s a much longer list of positives compared to mine.

 

@SatayKing was just flicking through some old notes of the little exercise you did in regards to argo, 5k plonked down every year over 20 years, no attention to share price or nta, just buy 5k every year for 20 years even tho you didn't follow that approach. A good practice for all investors not just beginners in regards to ignoring the noise and building up the quantity of shares similar to @truong and his method back in the day.

 

Thats certainly the conclusion I am coming in in terms of getting FIRE and what to accumulate. Always "thought" leverage was the key differentiating factor between the two asset class (I know you can leverage equities), but when you look at what you actually get out of property from a yield perspective, most you are relying on selling down to get the income you want in retirement.

Speaking of FIRE, is there a typically accepted (conservative) return (CG+yield) for a well diversified ETF/LIC portfolio. I've built a bit of cashflow model for our family to see when we can hit FI based on our expected income needs/wants and have built it largely around property, but keen to explore equities to see what the alternative looks like (I have quickly run the numbers based on 6% growth and 4% yields, but feel that may be a bit aggressive).

 

I go with 5% p.a. real returns (inflation-adjusted). Growth/yield split is irrelevant.

What are normal stock returns? | Ben Felix

 

Who's next? Discounts on LICs force managers to pivot

 

I was attempting to provide a balanced opinion.

Wow. Did that ages ago during a period I was bored shirtless. Same situation when I fooled around with the VAS/VGS numbers.

The hard part, at least for me, is ignoring the market and all the white noise which comes with it. And there is a lot of white noise I think. The old adage practice makes perfect but the practice is damn difficult. I have to constantly work at that and is a cause of my coffee addiction.

Plus I've paid taxes all my life.... which isn't true. I didn't pay any tax from birth until I entered the workforce.

 

I like to lurk in the property threads, and I've seen quite a few people (even some "property experts" with a lot of experience) who find it difficult to retire on property. Mainly due to owning mostly illiquid capital, low investment income, high costs (e.g. land tax), etc. The work-to-benefit ratio is pretty low.

Of course there are also those who have done well for themselves (usually thanks to a combination of high income(s), high credit availability (compared to now), a ton of leverage, and luck by investing in the Syd/Melb booms).

 

The leverage aspect would freak me out.

It's the major reason why I ditched the margin loan despite being comparatively modestly geared. Was useful but decided it wasn't for me. Didn't want a knock on the door and being asked to cough up or be sold up. For my well-being of my health best thing I did was to get rid of it.

 

Could be worth your while to checkout the blog 'Strong Money Australia'.The chap sometimes logs in here too. It's quite long now, but browse through headings & see what's applicable to you. His portfolio construction is likely similar to what some/many here do though without the property (which he regrets buying).

 

But if your intent is to live off the passive income in retirement, is there not relevance to the yield of your portfolio? Understand during accumulation phase, it doesn't matter.

 

I have had a look at this previously and was informative. From memory though I remember reading a post that seemed to suggest the focus is on the dividends and that growth was irrelevant. In fact, a declining share price was a good thing, because you can buy more. I've seen this sentiment on a few sites, and cannot fundamentally understand this. Dividends are a portion of share price, so surely an increasing share price is desirable.

 

IMO the only advantage of property is that you can add value (renovate, develop etc). Not sure of equities have the same ability? Although again IMO, you are no longer a passive investor, this becomes a 2nd job!

 

No, because receiving dividends and selling down your portfolio is exactly the same thing (ignoring tax consequences).

 

Growth over the very long term happens but short term not so as we are seeing now since March & at other periods over the years. But with good investments (for me that's old school Lic's & some etf's) dividends thus income, remain fairly stable (esp.with the old lic's). Am aware others, likely more knowledgeable than me, prefer total return approach ie. selling down the portfolio, thus needing growth & I get that, just that I prefer the steady div's at this point in time.

 

Some rough as guts numbers. Caveat is we don't know the future apart from there will be one.

Say you had plonked $800k in VGS and another $800k in VAS. The combined income based on their last distributions would have been about $11,500. Big assumption they remain about the same for the next distribution. Would you be OK with getting that income every three months (before franking, tax, etc) without putting in any effort?

 

Absolutely, although if fully franked at a 32.5% marginal tax rate, does that not equate to a 2.77% net yield? This is property territory! But I get the sentiment about NO EFFORT.

One of the biggest light bulb moments for me, was running some simplistic numbers (same growth, yield) of leverage property vs unleveraged equities and finding that the net worth in the long term is really the same, but the income (not based on the figures above, more like 4%) was much better with equities. Then all the added benefits you listed previously.

 

Now that's cleared up why wait?

 

I've long said that the average property investor doesn't have the actuarial skills to determine whether their strategy, over the long term, was a winner. Some might. Most probably don't.

Mind that I'm not saying various RE strategies aren't winners, just that the people operating them probably will often not have the arithmetical chops to work that out.

If you're doing it in a big way, maybe you'll have a better grasp of the numbers - you sort of have to - but if your strategy is to buy a single investment property because "I understand bricks and mortar" and "I don't trust the sharemarket - it's a lottery" then a higher likelihood you don't.

Lot of hoping going on.

 

That was a well explained commentary

 

Training wheels included probably.