If the only thing stopping you from investing in shares, is trying to workout the best stocks to invest in, can I gently recommend that you learn about the power of LISTED INVESTMENT COMPANIES AKA LICs. In this episode I explain why this is one of my favourite investment tools to help build a quality diversified investment portfolio and start earning passive income via dividends.
Not that this is product advice ever, however, when you learn about the benefits (as well as costs) of LICs, you may see this is the answer that you have been looking for to simply get started with your investing journey. Also, please note that I refer to SOL as a LIC, this is actually not 100% accurate as it is more of an investment conglomerate. Whilst I own SOL, I was a shareholder in Milton (which was a LIC), which was purchased by SOL. My apologies for any confusion caused.
If this episode resonates with you, please listen to this episode where I interview Angus Gluskie from Whitefield (one of Australia's oldest LICS) about how LICs invest, pay tax effective dividends and help reduce investment risk through diversification.
Listen to this interview here: https://podcasts.apple.com/au/podcast/sugarmammas-fireplay/id1521182757?i=1000633756339
Let me know what you think of this episode by reaching out to me @SugarMammaTV so that we can keep this conversation going.
Here are my two books:
Best Seller: The $1000 Project Book: https://amzn.to/3RV0Bnq
Mindful Money: https://amzn.to/3RV0poc
In the meantime...
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If you need help with your budget or are sick of living paycheque to paycheque, you can enrol into The SugarMamma Budget & Cashflow Academy course, which includes a one on one appointment with me so that I can help you. Enrol here: https://courses.sugarmamma.tv/Signup
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ADDITIONAL GENERAL ADVICE WARNING:
Whilst we discuss various financial topics, this podcast is not advice in anyway, but purely for educational purposes only. Nothing in this podcast is personal advice, investment advice or product advice. With any major financial decision, you must always do your own research, consider all the pros and cons, fees, caps, limits, costs, taxes etc. Always proactively educate yourself before making any major financial decision, consider your own financial goals, deadlines and risk profile. So please bear all of this in mind when listening to this podcast and please always speak to a Financial Planner when wondering what you should do to achieve your own financial goals and dreams.
GENERAL ADVICE WARNING & FINANCIAL PLANNING LICENSE DETAILS:
The information in this podcast is general in nature and does not take into account your personal circumstances, financial needs or objectives. Before acting on any information, you should consider the appropriateness of it and the relevant product having regard to your objectives, financial situation and needs. In particular, you should seek independent financial advice and read the relevant Product Disclosure Statement or other offer document prior to acquiring any financial product.
Canna Campbell is an Authorised Representative and Financial Adviser of Links Licensee Services Pty Ltd AFSL No.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Welcome back to another episode of Sugar Mama's Fireplay, the
podcast where we ignite your financial independence, your retire early strategies,
and empower you live a life on your own terms.
I am your host, passionate financial planner, Canna Campbell, and
today we are talking about one of my all time
favorite investment vehicles that are actually fueling my fire goals,
(00:25):
and that is listed investment companies also known as licks.
These long term passive income gems have been instrumental in
my own fire journey as I successfully and I say
that proudly, not smugly, work towards building a long term,
growing passive income stream of two hundred thousand dollars a year. Now,
(00:46):
if you've been following this show for a while, hopefully
you've heard my previous episode where I share with you
exactly the sources, how I'm tracking, and of course what
I have coming up to help make sure that I
am on track with my goals, if not hopefully smashing
my goals and exceeding them. So today, though, I really
want to share with you this particular topic around listed
(01:07):
investment companies because they could be a really powerful addition
to your existing portfolio. If you are part of the
fire movement, and of course you have a long term
investment time frame and you understand what your risk profile is,
particularly if you have a long term investment timeframe, and
you know and understand your risk profile, which is typically
(01:28):
around growth to high growth for this particular type of
asset class. Now, on that note of risks and asset class,
I need to remind you of my general advice warning.
Because I'm going to be really diving deep into this
particular topic listed investment companies, which is obviously a financial product,
I need to remind you that I'm not recommending this
particular asset or assets, and I will be listing some
(01:50):
examples of listed investment companies, some of which I have
personally invested in, both in my private share portfolio and
the thousand dollars project portfolio. So please know that just
because I'm talking about these particular assets, I'm not recommended
that you necessarily go and invest them. You've got to
go and get professional advice from a financial planner. And
of course, for those of you who are actually running
(02:10):
your own financial strategies and you think we'll let it,
want to see a financial planner. Can I really encourage
you to go and do a risk profile, do your
own research and work out the right percentage or the
right split as to what money you want to potentially
include with listed investment companies in your investment portfolio. But
again a reminder, these are long term investment vehicles and
typically for growth to high growth investors, So think about that, Blend.
(02:35):
I would never recommend someone puts all their eggs in
one basket. All right, Now that I've got that important
compliance disclosure out of the way, let's get started. All right.
(02:56):
First of all, what exactly are LICKS listed investment company?
So all right, let's set this up clearly the right
way their first time, because there's a lot of misconception
about what licks really are and how they differ from ETFs,
and how they fit into the fire strategy and of
course your long term goals. So I'm going to use
an analogy. I love a good analogy. So imagine you're
(03:18):
at a busy supermarket and there are countless aisles and
sections and different types of produce spread across this shopping supermarket,
and you've got to navigate this particular supermarket that you're
maybe new two you've never been to this particular one
before grab a trolley or a shopping basket and go
and find all of those items on your shopping list
(03:41):
as you go from aisle to aisle, and then you've
got to actually go and buy and pay for each
one individually. Now, of course, this is going to take time.
It's obviously going to be confusing trying to locate everything
and all the different aisles and all the different sections,
and of all the different levels, of all the shelves,
and all the different heights and levels that you find
items scattered across. Now, of course, as you're going up
(04:03):
and down the aisles, you run the risk that you
might forget something on your list, or you actually might
miss out on some really great weekly specials, you know,
miss out on those fabulous bargains that were hidden in
the corner, or you know, there were too many people
in the supermarket and they were blocking the sign for
you to see, you know, what particular meats or breads were,
you know slash that week or that particular time of
the day. Now that particular shopping technique buying things individually
(04:26):
is very much akin to buying individual stocks. However, when
you're using licks listed investment companies, It is literally like
turning up to the supermarket, walking through the door, and
then instead of having to go up and down all
the different aisles working through your list of items, you
just grab one of the pre packed shopping trolleys with
all the key ingredients and produce that you need in
(04:50):
order to be able to make and create a healthy, balanced,
nutritional meal for the next few weeks. And they've done
all the picking for you, and they've also included all
the great specials that they found in all the different
aisles hidden away behind the crowds. Now, because all that
convenience has been packaged up for you and it is
an efficient choice, you are going to have to pay
a small fee, but a fee for this service to
(05:12):
this value add in your life. But when you think
about all the hard work that has done, for all
the decisions that have been made, and the time that
you get back, you can actually see that buying that
or grabbing that pre packed shopping trolley is actually great
value for money, and you really appreciate it because you
can simply grab it, pay for it in one big transaction,
and then walk out the door continuing on with your day.
(05:33):
That is essentially what a listed investment company is and
to a certain degree obviously exchange traded funds. So think
of your lick as that prepackage shopping trolley, and it's
filled with healthy, nutritious food that's been picked out for
you by say a dietitian, a nutritionist, a fitness expert,
someone who's really sort of considered what is the best
ingredients in minerals and nutrients to build a really healthy
(05:56):
body for great longevity. There is your lick. Now, obviously
you lick isn't filled with food. Your listed investment company
investment has businesses, but a great mix of different diversified
businesses that have actually been hand picked by fire managers
with a huge amount of experience, experience of the long
(06:17):
term and success, consistent success. Now, if you want to
invest it in a lick, you normally need to do
this like you're buying shares, So you'd need like a
compsec account or a Moomo account, or a CMC account
or a NAB trade account, like an online share trading account.
Because when you invest in licks, you buy shares like
you would buy normal shares in any other company on
(06:38):
the AX. And of course, some examples of listed investment
companies in Australia are Whitefield, Irgo, Soul Patterson and of
course AFI. Now as I list those again reminded I'm
not giving you product device here whatsoever. Investment advice. Use
this as a start, use this as a guide to
start your own research, and of course make sure you
(07:00):
do your research before you actually make any major investments,
because I need you to just see and understand the
benefits of LICKS so that you can actually work out
whether licks are actually right for you and your financial goals.
Or perhaps after listening to the episode, you might think, actually, no,
licks are definitely not for me, because as I said,
these are long term buy and hold investments, which are
(07:20):
really for long term investors that are trying to build
up a passive income stream, which I'll explain in a moment.
So now I want to talk to you about the
key benefits that come with, you know, using a listed
investment company in your portfolio. And for full disclosure, yes
I have listed investment companies in the thousand dollars project
portfolio of my own private share portfolio and actually in
(07:41):
my superannuation account. So let's now explore the different reasons,
or the compelling reasons. I'd say why listed investment companies
can be a really powerful tool for you and your
own fire goals. So the first one is obviously the
immediate diversification. Diversification is the cornerstone of risk management when
it comes to investing. Instead of putting all your eggs
(08:03):
in one basket, listed investment companies spread all those investments
across various businesses, industry sectors, and sometimes even in different countries. Now,
what this does is it helps reduce the impact of
any single underperforming stock or asset in your overall investment portfolio. So,
for example, some listed investment companies give you exposure to
(08:25):
Australian shares, maybe some international shares, emerging markets, or particular
sectors that are quite niche and typically challenging to actually access.
So another way to understand this is is you've got
one thousand dollars to invest, and if you go and
try and invest that one thousand dollars, obviously ignoring for
a second micro investing platforms, and you're buying and parcels
of say five hundred dollars, that one thousand dollars is
(08:47):
really not diversified because you can only pick two companies
that you're going to invest in so there's a huge
amount of risk in that investment portfolio, and when you
decide instead to maybe look at a listed investment company,
you are potentially, you know, buying up to one hundred
and six different companies in that one simple transaction of
one thousand dollars. For example, Whitefield. If you look on
their website, you can see that they actually invest in
(09:07):
over I think of around about one hundred and sixty
different businesses, spread across different sectors, industries and obviously operating
in having exposure into other countries as well, so there
is immediate diversification. You're not putting all your eggs in
one basket. Of course, those decisions are outsourced. We'll come
to that in a second. The second benefit is accessing
professional management, someone who's making those decisions for you. So
(09:29):
navigating yourself the investment landscape can be daunting. I'm a
financial planner with over twenty something years experience. I find
it tough and overwhelming. The list of investment companies give
you the great advantage of having seasoned professionals manage your
whole entire portfolio, but the difference is also here they
actually have historical returns to show you how they have
typically performed, and how consistent they are over the long run,
(09:53):
and the actually you can see how they've handled stressful
times in history, and how they've sort of bounce back
or recovered how long it's taken for them to recover.
So they're actually making all of those really overwhelming investment
decisions on your behalf. And these experts they analyze market trends,
they have access to company performances. They even have direct
(10:14):
access to the CFOs and managing directors and owners of
these businesses, so they are literally sitting almost in the
office of these businesses working out whether they're great investments
for you and all the other shareholders or perhaps not.
And of course they're making all of those strategic choices
and decisions, which comes to making the most of your money,
optimizing returns, taking out rights, buybacks, all those sorts of
(10:37):
things that happen in the market, paying dividends and so forth,
and allowing you to benefit from their expertise without the
need to have to constantly monitor the markets continuously when
you're trying to do this yourself. So you get a
lot of time back for yourself and you take a
lot of stress and pressure off your shoulders when you
use a listed investment company, and I will say it
is obviously the same benefit that comes with managed funds
(11:00):
exchange traded funds. Now, this is a really big one,
and this is where we start to sort of see
the key differences. And I think, in my personal opinion,
how licks are actually more superior than exchange traded funds. Okay, So,
unlike exchange traded funds etips, listed investment companies operate as companies.
(11:20):
This tax structure actually allows them to pay dividends with
franking credits and reflecting that the tax has already been
paid at the corporate level. So for investors this means
potentially receiving tax effective income, as those franking credits can
actually help offset personal income tax liabilities. Also, some listed
(11:40):
investment companies, typically the older ones, like for example, Whitefields
over one hundred years old, they may have particular tax
advantages because they can sometimes distribute dividends source from capital gains,
which would then mean that as a shareholder, you're potentially
eligible for the capital gains tax discounts, which actually adds
a whole other level to the tax efficiency of a
(12:01):
listed investment company. So you need to understand ETFs and
licks are similar, but the key difference between the two
and ETF is an exchange traded fund and it typically
uses a trust structure, or a listed investment company uses
as a company structure. It can be a lot more
flexible when it comes to tax and of course the
tax efficiency. So that is essentially the big difference between
(12:23):
the two. And as I said, I feel like for
a lot of people who get this, they'll actually realize
it is a listed investment company when it comes to that,
just one key benefit instantly makes it far more superior
and efficient. The fourth benefit I would say to a
listed investment company is the administrative simplicity. Managing a portfolio
of numerous individual stocks can be extremely onerous burdensome, especially
(12:46):
when it comes to the end of the financial year,
because each stock that you buy generates statements, typically twice
a year, which means you have a mountain of paperwork
to go through and to get your accountant to go through,
which may end up being quite excit expensive. So for example,
if you have like say twenty or say thirty different
individual stocks in your share portfolio, that means you've got
(13:07):
sixty statements to go through at the end of each
financial year, whereas in contrast, when you're investing through a
listed investment company or even like your managed funder an ETF,
this is all consolidated for you as all your holdings
are paid detailed within the one or actually two statements
that are paid during that financial year. So it means
(13:29):
that your record keeping is so much more streamlined and efficient.
It makes you've also got a really great sense of
clarity when it comes to your investment portfolio and where
it's at, how much it's paid. It's just so much
easier to document and understand how are you actually progressing,
which is really important if you're part of the fire movement.
So this efficiency of having knowing that you're investing in,
(13:52):
say one hundred and sixty different companies, but yet you
only need to get two statements a year, which detail
obviously the income the franking credits how many units you've got,
is going to give you again back so much time
and allow you to see where you're progressing with your
financial goals and reducing those administrative headaches, particularly if you're
(14:12):
using a dividend reinvestment plan and have been using one
for quite some time. The next benefit to a listed
investment company and to really understand how powerful these are
is and this is probably i would say the biggest,
if not tying with the point number three being the
efficiency through a company tax structure, and that is consistent
growing dividends. Many listed investment companies have a track record
(14:37):
of providing consistent dividend payments, with some actually demonstrating a
history of growing dividends over time. Now, this can be
particularly appealing for passive income investors like myself who really
are trying to build long term passive income stream in
a stable, consistent way. This obviously includes the fire members,
(14:57):
but it also includes retirees people who need to know
that they're going to get their dividends, it's going to
be hopefully bigger than last year, and it's going to
continue on fueling their financial independence. Now, with a listed
investment company, they actually use a closed end structure which
allows the listed investment company to actually retain earnings during
profitable periods, which can then be used to maintain dividend
(15:20):
payments during less favorable market conditions. Now, if that doesn't
make sense, let me just explain it. It's like the
company has a bucket and the bucket is just continuously
being filled with water each year. But every now and
again there's a lot of water, there's a downpour, and
that bucket is a lot is full. It's got more
(15:41):
water in it than what it usually would because it's
got that flexibility of a company track structure, the person
managing that bucket of water can decide how they're going
to distribute that money to the shareholders, the people who
are holding their cups ready to have them filled up.
And because they may know that, for example, there might
be a drought or there might be some flooding coming up,
(16:02):
they know in advance to how to distribute that water
so that everyone is consistently getting their head rhydration needs.
Hopefully this analogy is making sense. So what essentially does
It allows the fund manager behind the listed investment company
to take a really proactive, mindful and intentional way in
paying consistent income out via dividends, but in a smooth way.
(16:27):
One of the things you'll notice if you look at
the historical returns of, say in exchange traded fund is
the income being paid can be very lumpy and chunky,
and that's because the fund manager uses a trust structure
and has had to pay capital gains out or special
dividends out for each financial year because that's what the
law says you have to do. So that can then
obviously then dramatically impact the share price or the unit
(16:50):
price of that ETF. This is something that is not
desirable and it can also create havoc for the individual
shareholders because they're getting all these capital gains taxes and
large income payment dumped on them, which doesn't necessarily work
for them from a timing point of view. And then
that often means that the following year the dividends aren't
going to be as strong. So this is what I'm
(17:10):
trying to explain to you. A listed investment company, as
I said, allows them to just retain earnings if and
when they want. They don't have to always pay them out.
They can decide, okay, well this year will pay out
this much, and this the following year will actually pay
out this much more or this much less. They have
that complete absolute control. The trust fund like an ETF,
doesn't have that flexibility at all. And you know, as
(17:31):
I said, when capital gains tax is triggered, they've got
to be paid out. They can't hold on and retain
those earnings, and I highly recommend going listening to my
podcast episode with Angus Gluski who runs Whitefield, because he
talks about this in more detail and how, in fact,
how incredibly powerful it is. Now, as you can say,
I love listed investment companies. Now, the next benefit to
(17:51):
a listed investment company is that transparency through the net
tangible assets. This is again really helpful and once this
year you'll be onto these websites in a hot second.
So a listed investment company has to regularly report their
net tangible assets, which is where they provide their investors
the insights as to you know, how the underlying portfolio,
(18:13):
how the underlying value of the portfolio is actually sitting at.
Now you'll be happy to hear this is actually really
easily found and you find it simply on the list
investment company's website. So last night I jumped on the
white Field website and I had a look at what
their net tangible asset was and as at it was
the twenty eighth of February I think twenty twenty five,
(18:35):
it was actually valued at six dollars thirty one, And
I then jumped on and had a look at what
the share price currently is it's five dollars thirty two. Now,
by comparing the net tangible asset that is, six dollars
thirty one against the listed investment company's share price which
is currently five dollars thirty two, investors like myself and
(18:58):
you can quickly identify if there is a potential buying
opportunity with this particular listed investment shares. When the net
tangible asset is bigger than the listed investment company's share price,
that is, the listed investment company shares are actually trading
at a discount to the net tangible assets, or vice versa.
(19:19):
If the listed investment company's share price is actually higher
than the net tangible asset, it means they're potentially going
to be paying for that share at a premium, which
of course we want to try and avoid. So this
transparency is really valuable and actually it helps us feel
more confident in our investment decisions and means that we're
making educated, informed decisions and thinking about our long term
goals and where we really want to go. You would
(19:41):
be a fool to just go out and buy a
listed investment company without checking the company's website, obviously doing
your research, but seeing what the net tangible asset is
and literally it's on the homepage. You can't miss it.
I'll even go and link some of these in the
podcast notes if it makes it easier for you. And
then finally, the other benefit to having a listed investment
company in your portfolio or a part of your overall
portfolio is Lenka says I said have close ended structures,
(20:04):
meaning that they have like a fixed pool of capital
and are not subject to investors' redemptions or even demands.
So let me quickly explain this. When it's closed ended,
it means they aren't issuing a continuous supply of shares
in the business. So it's like going to a shop
that's not producing any more stock. You can only buy
(20:24):
what's available. They're not going to be making more and
filling the shelves again. So you need to, you know,
buy for the long run, and you need to buy
exactly what you need. So when it comes to actually
buying shares in the listed investment company, you can only
actually buy those shares when they're available because another shareholder
is selling theirs. Now, what this does for the business
(20:45):
is really important that you understand. It actually helps create
a stability of cash flow for the underlying find manager
behind the listed investment company, and because of that, it
means that they can just focus on the long term
investment strategies without the pressure of having to meet short
term liquidity demands. Now, because of this strict requirement being
(21:05):
close ended, most of the shareholders in the listed investment
companies are all in it for the long run, for
that long run love of growth and income. And it's
very much akin to planting a fruit tree and you know,
allowing it to grow undisturbed, but obviously making sure it's
got sunlight and not disturbed by pests and weeds, and
(21:27):
doesn't obviously get too much water, but just letting it
do its thing, rather than constantly uprooting it and checking
its progress and then questioning why it hasn't produced any
fruit yet. If you can think of a listed investment
company as that fruit tree, leave it alone, let it grow,
let it create those deep roots first before it starts
to sprout and become that fruit tree, and that fruit
(21:49):
tree will then eventually give you this abundance supply of fabulous, nutritious,
delicious fruit which you can use for many, many years
to come by simply kicking the fruit and letting another
season come and it produces more fruit. Again. You're not
digging the whole fruit tree out and getting rid of
it and starting all over again from scratch. You let
(22:09):
it do its thick and that does require self control,
and of course a lot of patients, but definitely patients
that is well worthwhile having doing and following. And of
course and of course the flow on benefits from this
is it helped keeps those investment fees the mers down,
(22:29):
makes them competitive, makes them low, means that you're getting
even better value for money. Now, of course it wouldn't
be fair or ethical for me to just only talk
about how fabulous listed investment companies are without talking about
the limitations or frustrations even of licks. So let me
just quickly run you through the downsides. Look, there aren't
many in my opinion, but I still need to do
(22:51):
the right thing and make sure that you're aware because
this is all about financial education. So all right, these
are the drawbacks or potential drawbacks that you need to understand.
You're trying to build a balanced investment portfolio. The first
being the market price versus the net tangible assets. So
listed investment company shares can trade at a premium or
a discount to the ntaight, which we just discussed, and
(23:12):
buying at a premium obviously means that you're paying more
than the underlying assets are worth, which you obviously want
to avoid. And of course the flip side of that
is purchasing them at a discount that might indicate that
they're undervalued on the share market. However, when you're looking
at those two points of comparison, there is absolutely no
guarantee that the discount will close. That is, you know,
(23:33):
the for example, with Whitefield, that the share price is
going to bounce back up to six dollars thirty one
or even higher. There is nothing is ever guarantee when
it comes to investing, and of course that gap could
widen further. So you know, the net tangible asset right
now of Whitefield is six dollars thirty one currently trading
at five dollars thirty two. That could go lower. That
(23:54):
share price could actually drop below five dollars even These
are real risks that you need to understand before you
go and invest. The second downside, which obviously I don't
think is a downside if you're coming from a place
of scarcity, if you think this is the management fees. Obviously,
farm managers don't work for free. Listed investment companies charge
management fees for their professional services, for the advice they deliver,
(24:16):
what they go and do, and of course the value
that they add. Now, whilst these fees obviously they compensate
for that expert management, they can obviously vary between listed
investment company and listed investment company, and of course you know,
the more fees you're paying, it's going to impact the returns.
So it's you've got to sort of when you're doing
your research, it's really important you assess whether the fees
are justified by the listed investment company and the performance
(24:37):
they've delivered and the risks they're taking, and of course
if they are aligned to your long term financial goals. Now,
when I was on the Whitefield website last night, I
had a quick look at what their current MR is
and I actually remember interviewing Angus Gluski from Whitefield and
their farm manager fee was around about thirty two basis points. Anyway,
to my delight and hopefully you're delight, you can see
(25:00):
the MAI has now dropped to zero point two six
percent per anum. So if you think about one hundred
thousand dollars invested in Whitefield. Again not investment advice. This
is example. You're only paying two hundred and sixty dollars
a year for them to invest that money for you,
make all those indecisions and do all their statements for
you when it comes to tax time. I mean that
is that means that your fund manager is almost working
(25:21):
for a couple of cents in a minute. That's slave labor,
you know it is. That is in my mind, excellent
value for money, rather than you having to invest that
one hundred thousand dollars yourself and think about all the time,
knowing what's stock to buy, and when that's stocked to buy,
whether it's good value or not. You know which offers
to take up. You know if they have a buyback
or you can get some bonus shares. These are a
little decisions are done by a fundament measure, and they're
(25:42):
charging you two hundred and sixty dollars a year, which
might I add is also tax deductible. So to me, yes,
fund managers are part of the game, but and they're
well worth it in most situations. But you need to
understand the cost of it and how it impacts your return.
Next is liquidity. Now, this is one that you must understand.
Some listed investment companies, particularly the smaller ones, which I'm
not really comfortable with personally, but you always do your
(26:05):
reshares because there are some good ones out there. They
may have a lower trading volume leading to liquidity issues,
which means if you need to sell, you can't necessarily
offload your stocks, or you have to offload them at
a really low price, which is not ideal. So this
makes it really challenging to buy but also to sell
shares without it actually impacting the price. And this is
particularly relevant during really volatile muck conditions like we're experiencing
(26:29):
right now. So before you go and invest in a list
investment company, make sure you can see that there is
lots of liquidity before you invest, because you may get
caught out if you need to sell or if you
want to try and buy back more and you're stuck
because there's just there's no one else selling their shares
their stock in the company. And then finally, performance fariability.
Like all investments and the whole world of investing in
(26:51):
different asset classes and different stocks and industries, nothing performs equally.
You know, there is a negative correlation between the share
market fixed interest the US market, the Australian market, the
Asian market. Like they're not perfectly in sync with each other.
They don't all perform well at the same time, or
it's very rare that they do. And the success of
(27:12):
a listed investment company is exactly the same, you know,
obviously depends on the fund manager's skill and their investment strategy,
and past performance is never indicative of the future performance.
So whilst you might go and look at how they're
performed over the last couple of years, know that that
is not actually an accurate reflection of where they're necessarily
going in the future. And I will say when you
(27:33):
do look at historical returns, please don't just look at
the last couple of years. Try and look at the ten, fifteen,
twenty years worth of returns those historical returns to get
a much clearer picture as to how they perform consistently
over time. So do your research, look at that track record,
and of course look at the management team and making
sure that they've been around for a really long time
(27:54):
and you know that they're consistently there for the business
and not jumping from far manager to fund manager, which
can obviously be a risk in this particular market. Right
now now in summary list of investment companies, as you
can now hear, can be really valuable in your investment
portfolio and in that I guess toolkit that you have.
They give you the diversification you access, amazing professional management,
(28:16):
the tax efficiency, the growing passive income, the admin is
transparency of the net tangible assets on the website, and
of course that long term focus of building capital growth
and growing important growing passive income streams through dividends, ideally
fully frank dividends. However, at the end of the day,
(28:37):
it is vital to actually weigh these benefits against your
obviously potential drawbacks such as deviations and management fees and
liquidity issues and of course that performance of veriability. But
these can be also incredibly powerful and I'm happy to
disclose I own these myself. So with any investment, as
you know, due diligence is key. Look at your own
financial goals, and as I said, these are for long
(28:59):
term financial goals. Look at your risk profile, the risk tolerance,
and of course the time frame in which you want
to achieve your goals. Because a listed investment company is
for the long run ten years, if not longer. And
my goal with my listed investment company is to never
actually sell it, but to eventually build up enough passive
income through dividends. So I never sell those shares. I
just get my dividend checks or deposits, you know, twice
(29:23):
a year that cover my living expenses for the next
six months or beyond, and then once that runs out,
I get another dividend paid six months after that. So
this is a continuous flow of water. You know, that
bucket of water analogy just continues on filling up my cup.
Every time it's about to run dryer, it's looking like
it's a bit lower. I get. You know that dividend
comes in perfect timing. Now, of course, if this is
(29:44):
something of serious interest to you, I will always recommend
you go and speak to a financial planner and you
speak to them about how it is best for you
to use a listed investment company in your portfolio, but
potentially blended with your other investment assets, because you never
want any regrets when it comes to building your own
financial freedom and independence. All right, that is it for
this episode today. Thank you so much for tuning into
(30:06):
sugar Mama's fireplay. And I really hope that you enjoyed
this particular episode And do you feel so much more
motivated and inspired when it comes to this really powerful
investment asset class for your own goals. Now, until next time,
stay informed, stay empowered, and keep that financial fire burning bright.
This is sugar Mama's fire
Welcome back to another episode of Sugar Mama's Fireplay, the
podcast where we ignite your financial independence, your retire early strategies,
and empower you live a life on your own terms.
I am your host, passionate financial planner, Canna Campbell, and
today we are talking about one of my all time
favorite investment vehicles that are actually fueling my fire goals,
(00:25):
and that is listed investment companies also known as licks.
These long term passive income gems have been instrumental in
my own fire journey as I successfully and I say
that proudly, not smugly, work towards building a long term,
growing passive income stream of two hundred thousand dollars a year. Now,
(00:46):
if you've been following this show for a while, hopefully
you've heard my previous episode where I share with you
exactly the sources, how I'm tracking, and of course what
I have coming up to help make sure that I
am on track with my goals, if not hopefully smashing
my goals and exceeding them. So today, though, I really
want to share with you this particular topic around listed
(01:07):
investment companies because they could be a really powerful addition
to your existing portfolio. If you are part of the
fire movement, and of course you have a long term
investment time frame and you understand what your risk profile is,
particularly if you have a long term investment timeframe, and
you know and understand your risk profile, which is typically
(01:28):
around growth to high growth for this particular type of
asset class. Now, on that note of risks and asset class,
I need to remind you of my general advice warning.
Because I'm going to be really diving deep into this
particular topic listed investment companies, which is obviously a financial product,
I need to remind you that I'm not recommending this
particular asset or assets, and I will be listing some
(01:50):
examples of listed investment companies, some of which I have
personally invested in, both in my private share portfolio and
the thousand dollars project portfolio. So please know that just
because I'm talking about these particular assets, I'm not recommended
that you necessarily go and invest them. You've got to
go and get professional advice from a financial planner. And
of course, for those of you who are actually running
(02:10):
your own financial strategies and you think we'll let it,
want to see a financial planner. Can I really encourage
you to go and do a risk profile, do your
own research and work out the right percentage or the
right split as to what money you want to potentially
include with listed investment companies in your investment portfolio. But
again a reminder, these are long term investment vehicles and
typically for growth to high growth investors, So think about that, Blend.
(02:35):
I would never recommend someone puts all their eggs in
one basket. All right, Now that I've got that important
compliance disclosure out of the way, let's get started. All right.
(02:56):
First of all, what exactly are LICKS listed investment company?
So all right, let's set this up clearly the right
way their first time, because there's a lot of misconception
about what licks really are and how they differ from ETFs,
and how they fit into the fire strategy and of
course your long term goals. So I'm going to use
an analogy. I love a good analogy. So imagine you're
(03:18):
at a busy supermarket and there are countless aisles and
sections and different types of produce spread across this shopping supermarket,
and you've got to navigate this particular supermarket that you're
maybe new two you've never been to this particular one
before grab a trolley or a shopping basket and go
and find all of those items on your shopping list
(03:41):
as you go from aisle to aisle, and then you've
got to actually go and buy and pay for each
one individually. Now, of course, this is going to take time.
It's obviously going to be confusing trying to locate everything
and all the different aisles and all the different sections,
and of all the different levels, of all the shelves,
and all the different heights and levels that you find
items scattered across. Now, of course, as you're going up
(04:03):
and down the aisles, you run the risk that you
might forget something on your list, or you actually might
miss out on some really great weekly specials, you know,
miss out on those fabulous bargains that were hidden in
the corner, or you know, there were too many people
in the supermarket and they were blocking the sign for
you to see, you know, what particular meats or breads were,
you know slash that week or that particular time of
the day. Now that particular shopping technique buying things individually
(04:26):
is very much akin to buying individual stocks. However, when
you're using licks listed investment companies, It is literally like
turning up to the supermarket, walking through the door, and
then instead of having to go up and down all
the different aisles working through your list of items, you
just grab one of the pre packed shopping trolleys with
all the key ingredients and produce that you need in
(04:50):
order to be able to make and create a healthy, balanced,
nutritional meal for the next few weeks. And they've done
all the picking for you, and they've also included all
the great specials that they found in all the different
aisles hidden away behind the crowds. Now, because all that
convenience has been packaged up for you and it is
an efficient choice, you are going to have to pay
a small fee, but a fee for this service to
(05:12):
this value add in your life. But when you think
about all the hard work that has done, for all
the decisions that have been made, and the time that
you get back, you can actually see that buying that
or grabbing that pre packed shopping trolley is actually great
value for money, and you really appreciate it because you
can simply grab it, pay for it in one big transaction,
and then walk out the door continuing on with your day.
(05:33):
That is essentially what a listed investment company is and
to a certain degree obviously exchange traded funds. So think
of your lick as that prepackage shopping trolley, and it's
filled with healthy, nutritious food that's been picked out for
you by say a dietitian, a nutritionist, a fitness expert,
someone who's really sort of considered what is the best
ingredients in minerals and nutrients to build a really healthy
(05:56):
body for great longevity. There is your lick. Now, obviously
you lick isn't filled with food. Your listed investment company
investment has businesses, but a great mix of different diversified
businesses that have actually been hand picked by fire managers
with a huge amount of experience, experience of the long
(06:17):
term and success, consistent success. Now, if you want to
invest it in a lick, you normally need to do
this like you're buying shares, So you'd need like a
compsec account or a Moomo account, or a CMC account
or a NAB trade account, like an online share trading account.
Because when you invest in licks, you buy shares like
you would buy normal shares in any other company on
(06:38):
the AX. And of course, some examples of listed investment
companies in Australia are Whitefield, Irgo, Soul Patterson and of
course AFI. Now as I list those again reminded I'm
not giving you product device here whatsoever. Investment advice. Use
this as a start, use this as a guide to
start your own research, and of course make sure you
(07:00):
do your research before you actually make any major investments,
because I need you to just see and understand the
benefits of LICKS so that you can actually work out
whether licks are actually right for you and your financial goals.
Or perhaps after listening to the episode, you might think, actually, no,
licks are definitely not for me, because as I said,
these are long term buy and hold investments, which are
(07:20):
really for long term investors that are trying to build
up a passive income stream, which I'll explain in a moment.
So now I want to talk to you about the
key benefits that come with, you know, using a listed
investment company in your portfolio. And for full disclosure, yes
I have listed investment companies in the thousand dollars project
portfolio of my own private share portfolio and actually in
(07:41):
my superannuation account. So let's now explore the different reasons,
or the compelling reasons. I'd say why listed investment companies
can be a really powerful tool for you and your
own fire goals. So the first one is obviously the
immediate diversification. Diversification is the cornerstone of risk management when
it comes to investing. Instead of putting all your eggs
(08:03):
in one basket, listed investment companies spread all those investments
across various businesses, industry sectors, and sometimes even in different countries. Now,
what this does is it helps reduce the impact of
any single underperforming stock or asset in your overall investment portfolio. So,
for example, some listed investment companies give you exposure to
(08:25):
Australian shares, maybe some international shares, emerging markets, or particular
sectors that are quite niche and typically challenging to actually access.
So another way to understand this is is you've got
one thousand dollars to invest, and if you go and
try and invest that one thousand dollars, obviously ignoring for
a second micro investing platforms, and you're buying and parcels
of say five hundred dollars, that one thousand dollars is
(08:47):
really not diversified because you can only pick two companies
that you're going to invest in so there's a huge
amount of risk in that investment portfolio, and when you
decide instead to maybe look at a listed investment company,
you are potentially, you know, buying up to one hundred
and six different companies in that one simple transaction of
one thousand dollars. For example, Whitefield. If you look on
their website, you can see that they actually invest in
(09:07):
over I think of around about one hundred and sixty
different businesses, spread across different sectors, industries and obviously operating
in having exposure into other countries as well, so there
is immediate diversification. You're not putting all your eggs in
one basket. Of course, those decisions are outsourced. We'll come
to that in a second. The second benefit is accessing
professional management, someone who's making those decisions for you. So
(09:29):
navigating yourself the investment landscape can be daunting. I'm a
financial planner with over twenty something years experience. I find
it tough and overwhelming. The list of investment companies give
you the great advantage of having seasoned professionals manage your
whole entire portfolio, but the difference is also here they
actually have historical returns to show you how they have
typically performed, and how consistent they are over the long run,
(09:53):
and the actually you can see how they've handled stressful
times in history, and how they've sort of bounce back
or recovered how long it's taken for them to recover.
So they're actually making all of those really overwhelming investment
decisions on your behalf. And these experts they analyze market trends,
they have access to company performances. They even have direct
(10:14):
access to the CFOs and managing directors and owners of
these businesses, so they are literally sitting almost in the
office of these businesses working out whether they're great investments
for you and all the other shareholders or perhaps not.
And of course they're making all of those strategic choices
and decisions, which comes to making the most of your money,
optimizing returns, taking out rights, buybacks, all those sorts of
(10:37):
things that happen in the market, paying dividends and so forth,
and allowing you to benefit from their expertise without the
need to have to constantly monitor the markets continuously when
you're trying to do this yourself. So you get a
lot of time back for yourself and you take a
lot of stress and pressure off your shoulders when you
use a listed investment company, and I will say it
is obviously the same benefit that comes with managed funds
(11:00):
exchange traded funds. Now, this is a really big one,
and this is where we start to sort of see
the key differences. And I think, in my personal opinion,
how licks are actually more superior than exchange traded funds. Okay, So,
unlike exchange traded funds etips, listed investment companies operate as companies.
(11:20):
This tax structure actually allows them to pay dividends with
franking credits and reflecting that the tax has already been
paid at the corporate level. So for investors this means
potentially receiving tax effective income, as those franking credits can
actually help offset personal income tax liabilities. Also, some listed
(11:40):
investment companies, typically the older ones, like for example, Whitefields
over one hundred years old, they may have particular tax
advantages because they can sometimes distribute dividends source from capital gains,
which would then mean that as a shareholder, you're potentially
eligible for the capital gains tax discounts, which actually adds
a whole other level to the tax efficiency of a
(12:01):
listed investment company. So you need to understand ETFs and
licks are similar, but the key difference between the two
and ETF is an exchange traded fund and it typically
uses a trust structure, or a listed investment company uses
as a company structure. It can be a lot more
flexible when it comes to tax and of course the
tax efficiency. So that is essentially the big difference between
(12:23):
the two. And as I said, I feel like for
a lot of people who get this, they'll actually realize
it is a listed investment company when it comes to that,
just one key benefit instantly makes it far more superior
and efficient. The fourth benefit I would say to a
listed investment company is the administrative simplicity. Managing a portfolio
of numerous individual stocks can be extremely onerous burdensome, especially
(12:46):
when it comes to the end of the financial year,
because each stock that you buy generates statements, typically twice
a year, which means you have a mountain of paperwork
to go through and to get your accountant to go through,
which may end up being quite excit expensive. So for example,
if you have like say twenty or say thirty different
individual stocks in your share portfolio, that means you've got
(13:07):
sixty statements to go through at the end of each
financial year, whereas in contrast, when you're investing through a
listed investment company or even like your managed funder an ETF,
this is all consolidated for you as all your holdings
are paid detailed within the one or actually two statements
that are paid during that financial year. So it means
(13:29):
that your record keeping is so much more streamlined and efficient.
It makes you've also got a really great sense of
clarity when it comes to your investment portfolio and where
it's at, how much it's paid. It's just so much
easier to document and understand how are you actually progressing,
which is really important if you're part of the fire movement.
So this efficiency of having knowing that you're investing in,
(13:52):
say one hundred and sixty different companies, but yet you
only need to get two statements a year, which detail
obviously the income the franking credits how many units you've got,
is going to give you again back so much time
and allow you to see where you're progressing with your
financial goals and reducing those administrative headaches, particularly if you're
(14:12):
using a dividend reinvestment plan and have been using one
for quite some time. The next benefit to a listed
investment company and to really understand how powerful these are
is and this is probably i would say the biggest,
if not tying with the point number three being the
efficiency through a company tax structure, and that is consistent
growing dividends. Many listed investment companies have a track record
(14:37):
of providing consistent dividend payments, with some actually demonstrating a
history of growing dividends over time. Now, this can be
particularly appealing for passive income investors like myself who really
are trying to build long term passive income stream in
a stable, consistent way. This obviously includes the fire members,
(14:57):
but it also includes retirees people who need to know
that they're going to get their dividends, it's going to
be hopefully bigger than last year, and it's going to
continue on fueling their financial independence. Now, with a listed
investment company, they actually use a closed end structure which
allows the listed investment company to actually retain earnings during
profitable periods, which can then be used to maintain dividend
(15:20):
payments during less favorable market conditions. Now, if that doesn't
make sense, let me just explain it. It's like the
company has a bucket and the bucket is just continuously
being filled with water each year. But every now and
again there's a lot of water, there's a downpour, and
that bucket is a lot is full. It's got more
(15:41):
water in it than what it usually would because it's
got that flexibility of a company track structure, the person
managing that bucket of water can decide how they're going
to distribute that money to the shareholders, the people who
are holding their cups ready to have them filled up.
And because they may know that, for example, there might
be a drought or there might be some flooding coming up,
(16:02):
they know in advance to how to distribute that water
so that everyone is consistently getting their head rhydration needs.
Hopefully this analogy is making sense. So what essentially does
It allows the fund manager behind the listed investment company
to take a really proactive, mindful and intentional way in
paying consistent income out via dividends, but in a smooth way.
(16:27):
One of the things you'll notice if you look at
the historical returns of, say in exchange traded fund is
the income being paid can be very lumpy and chunky,
and that's because the fund manager uses a trust structure
and has had to pay capital gains out or special
dividends out for each financial year because that's what the
law says you have to do. So that can then
obviously then dramatically impact the share price or the unit
(16:50):
price of that ETF. This is something that is not
desirable and it can also create havoc for the individual
shareholders because they're getting all these capital gains taxes and
large income payment dumped on them, which doesn't necessarily work
for them from a timing point of view. And then
that often means that the following year the dividends aren't
going to be as strong. So this is what I'm
(17:10):
trying to explain to you. A listed investment company, as
I said, allows them to just retain earnings if and
when they want. They don't have to always pay them out.
They can decide, okay, well this year will pay out
this much, and this the following year will actually pay
out this much more or this much less. They have
that complete absolute control. The trust fund like an ETF,
doesn't have that flexibility at all. And you know, as
(17:31):
I said, when capital gains tax is triggered, they've got
to be paid out. They can't hold on and retain
those earnings, and I highly recommend going listening to my
podcast episode with Angus Gluski who runs Whitefield, because he
talks about this in more detail and how, in fact,
how incredibly powerful it is. Now, as you can say,
I love listed investment companies. Now, the next benefit to
(17:51):
a listed investment company is that transparency through the net
tangible assets. This is again really helpful and once this
year you'll be onto these websites in a hot second.
So a listed investment company has to regularly report their
net tangible assets, which is where they provide their investors
the insights as to you know, how the underlying portfolio,
(18:13):
how the underlying value of the portfolio is actually sitting at.
Now you'll be happy to hear this is actually really
easily found and you find it simply on the list
investment company's website. So last night I jumped on the
white Field website and I had a look at what
their net tangible asset was and as at it was
the twenty eighth of February I think twenty twenty five,
(18:35):
it was actually valued at six dollars thirty one, And
I then jumped on and had a look at what
the share price currently is it's five dollars thirty two. Now,
by comparing the net tangible asset that is, six dollars
thirty one against the listed investment company's share price which
is currently five dollars thirty two, investors like myself and
(18:58):
you can quickly identify if there is a potential buying
opportunity with this particular listed investment shares. When the net
tangible asset is bigger than the listed investment company's share price,
that is, the listed investment company shares are actually trading
at a discount to the net tangible assets, or vice versa.
(19:19):
If the listed investment company's share price is actually higher
than the net tangible asset, it means they're potentially going
to be paying for that share at a premium, which
of course we want to try and avoid. So this
transparency is really valuable and actually it helps us feel
more confident in our investment decisions and means that we're
making educated, informed decisions and thinking about our long term
goals and where we really want to go. You would
(19:41):
be a fool to just go out and buy a
listed investment company without checking the company's website, obviously doing
your research, but seeing what the net tangible asset is
and literally it's on the homepage. You can't miss it.
I'll even go and link some of these in the
podcast notes if it makes it easier for you. And
then finally, the other benefit to having a listed investment
company in your portfolio or a part of your overall
portfolio is Lenka says I said have close ended structures,
(20:04):
meaning that they have like a fixed pool of capital
and are not subject to investors' redemptions or even demands.
So let me quickly explain this. When it's closed ended,
it means they aren't issuing a continuous supply of shares
in the business. So it's like going to a shop
that's not producing any more stock. You can only buy
(20:24):
what's available. They're not going to be making more and
filling the shelves again. So you need to, you know,
buy for the long run, and you need to buy
exactly what you need. So when it comes to actually
buying shares in the listed investment company, you can only
actually buy those shares when they're available because another shareholder
is selling theirs. Now, what this does for the business
(20:45):
is really important that you understand. It actually helps create
a stability of cash flow for the underlying find manager
behind the listed investment company, and because of that, it
means that they can just focus on the long term
investment strategies without the pressure of having to meet short
term liquidity demands. Now, because of this strict requirement being
(21:05):
close ended, most of the shareholders in the listed investment
companies are all in it for the long run, for
that long run love of growth and income. And it's
very much akin to planting a fruit tree and you know,
allowing it to grow undisturbed, but obviously making sure it's
got sunlight and not disturbed by pests and weeds, and
(21:27):
doesn't obviously get too much water, but just letting it
do its thing, rather than constantly uprooting it and checking
its progress and then questioning why it hasn't produced any
fruit yet. If you can think of a listed investment
company as that fruit tree, leave it alone, let it grow,
let it create those deep roots first before it starts
to sprout and become that fruit tree, and that fruit
(21:49):
tree will then eventually give you this abundance supply of fabulous, nutritious,
delicious fruit which you can use for many, many years
to come by simply kicking the fruit and letting another
season come and it produces more fruit. Again. You're not
digging the whole fruit tree out and getting rid of
it and starting all over again from scratch. You let
(22:09):
it do its thick and that does require self control,
and of course a lot of patients, but definitely patients
that is well worthwhile having doing and following. And of
course and of course the flow on benefits from this
is it helped keeps those investment fees the mers down,
(22:29):
makes them competitive, makes them low, means that you're getting
even better value for money. Now, of course it wouldn't
be fair or ethical for me to just only talk
about how fabulous listed investment companies are without talking about
the limitations or frustrations even of licks. So let me
just quickly run you through the downsides. Look, there aren't
many in my opinion, but I still need to do
(22:51):
the right thing and make sure that you're aware because
this is all about financial education. So all right, these
are the drawbacks or potential drawbacks that you need to understand.
You're trying to build a balanced investment portfolio. The first
being the market price versus the net tangible assets. So
listed investment company shares can trade at a premium or
a discount to the ntaight, which we just discussed, and
(23:12):
buying at a premium obviously means that you're paying more
than the underlying assets are worth, which you obviously want
to avoid. And of course the flip side of that
is purchasing them at a discount that might indicate that
they're undervalued on the share market. However, when you're looking
at those two points of comparison, there is absolutely no
guarantee that the discount will close. That is, you know,
(23:33):
the for example, with Whitefield, that the share price is
going to bounce back up to six dollars thirty one
or even higher. There is nothing is ever guarantee when
it comes to investing, and of course that gap could
widen further. So you know, the net tangible asset right
now of Whitefield is six dollars thirty one currently trading
at five dollars thirty two. That could go lower. That
(23:54):
share price could actually drop below five dollars even These
are real risks that you need to understand before you
go and invest. The second downside, which obviously I don't
think is a downside if you're coming from a place
of scarcity, if you think this is the management fees. Obviously,
farm managers don't work for free. Listed investment companies charge
management fees for their professional services, for the advice they deliver,
(24:16):
what they go and do, and of course the value
that they add. Now, whilst these fees obviously they compensate
for that expert management, they can obviously vary between listed
investment company and listed investment company, and of course you know,
the more fees you're paying, it's going to impact the returns.
So it's you've got to sort of when you're doing
your research, it's really important you assess whether the fees
are justified by the listed investment company and the performance
(24:37):
they've delivered and the risks they're taking, and of course
if they are aligned to your long term financial goals. Now,
when I was on the Whitefield website last night, I
had a quick look at what their current MR is
and I actually remember interviewing Angus Gluski from Whitefield and
their farm manager fee was around about thirty two basis points. Anyway,
to my delight and hopefully you're delight, you can see
(25:00):
the MAI has now dropped to zero point two six
percent per anum. So if you think about one hundred
thousand dollars invested in Whitefield. Again not investment advice. This
is example. You're only paying two hundred and sixty dollars
a year for them to invest that money for you,
make all those indecisions and do all their statements for
you when it comes to tax time. I mean that
is that means that your fund manager is almost working
(25:21):
for a couple of cents in a minute. That's slave labor,
you know it is. That is in my mind, excellent
value for money, rather than you having to invest that
one hundred thousand dollars yourself and think about all the time,
knowing what's stock to buy, and when that's stocked to buy,
whether it's good value or not. You know which offers
to take up. You know if they have a buyback
or you can get some bonus shares. These are a
little decisions are done by a fundament measure, and they're
(25:42):
charging you two hundred and sixty dollars a year, which
might I add is also tax deductible. So to me, yes,
fund managers are part of the game, but and they're
well worth it in most situations. But you need to
understand the cost of it and how it impacts your return.
Next is liquidity. Now, this is one that you must understand.
Some listed investment companies, particularly the smaller ones, which I'm
not really comfortable with personally, but you always do your
(26:05):
reshares because there are some good ones out there. They
may have a lower trading volume leading to liquidity issues,
which means if you need to sell, you can't necessarily
offload your stocks, or you have to offload them at
a really low price, which is not ideal. So this
makes it really challenging to buy but also to sell
shares without it actually impacting the price. And this is
particularly relevant during really volatile muck conditions like we're experiencing
(26:29):
right now. So before you go and invest in a list
investment company, make sure you can see that there is
lots of liquidity before you invest, because you may get
caught out if you need to sell or if you
want to try and buy back more and you're stuck
because there's just there's no one else selling their shares
their stock in the company. And then finally, performance fariability.
Like all investments and the whole world of investing in
(26:51):
different asset classes and different stocks and industries, nothing performs equally.
You know, there is a negative correlation between the share
market fixed interest the US market, the Australian market, the
Asian market. Like they're not perfectly in sync with each other.
They don't all perform well at the same time, or
it's very rare that they do. And the success of
(27:12):
a listed investment company is exactly the same, you know,
obviously depends on the fund manager's skill and their investment strategy,
and past performance is never indicative of the future performance.
So whilst you might go and look at how they're
performed over the last couple of years, know that that
is not actually an accurate reflection of where they're necessarily
going in the future. And I will say when you
(27:33):
do look at historical returns, please don't just look at
the last couple of years. Try and look at the ten, fifteen,
twenty years worth of returns those historical returns to get
a much clearer picture as to how they perform consistently
over time. So do your research, look at that track record,
and of course look at the management team and making
sure that they've been around for a really long time
(27:54):
and you know that they're consistently there for the business
and not jumping from far manager to fund manager, which
can obviously be a risk in this particular market. Right
now now in summary list of investment companies, as you
can now hear, can be really valuable in your investment
portfolio and in that I guess toolkit that you have.
They give you the diversification you access, amazing professional management,
(28:16):
the tax efficiency, the growing passive income, the admin is
transparency of the net tangible assets on the website, and
of course that long term focus of building capital growth
and growing important growing passive income streams through dividends, ideally
fully frank dividends. However, at the end of the day,
(28:37):
it is vital to actually weigh these benefits against your
obviously potential drawbacks such as deviations and management fees and
liquidity issues and of course that performance of veriability. But
these can be also incredibly powerful and I'm happy to
disclose I own these myself. So with any investment, as
you know, due diligence is key. Look at your own
financial goals, and as I said, these are for long
(28:59):
term financial goals. Look at your risk profile, the risk tolerance,
and of course the time frame in which you want
to achieve your goals. Because a listed investment company is
for the long run ten years, if not longer. And
my goal with my listed investment company is to never
actually sell it, but to eventually build up enough passive
income through dividends. So I never sell those shares. I
just get my dividend checks or deposits, you know, twice
(29:23):
a year that cover my living expenses for the next
six months or beyond, and then once that runs out,
I get another dividend paid six months after that. So
this is a continuous flow of water. You know, that
bucket of water analogy just continues on filling up my cup.
Every time it's about to run dryer, it's looking like
it's a bit lower. I get. You know that dividend
comes in perfect timing. Now, of course, if this is
(29:44):
something of serious interest to you, I will always recommend
you go and speak to a financial planner and you
speak to them about how it is best for you
to use a listed investment company in your portfolio, but
potentially blended with your other investment assets, because you never
want any regrets when it comes to building your own
financial freedom and independence. All right, that is it for
this episode today. Thank you so much for tuning into
(30:06):
sugar Mama's fireplay. And I really hope that you enjoyed
this particular episode And do you feel so much more
motivated and inspired when it comes to this really powerful
investment asset class for your own goals. Now, until next time,
stay informed, stay empowered, and keep that financial fire burning bright.
This is sugar Mama's fire
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