# Approx $300K to invest



## APINDEX (22 January 2017)

Hi All,

Apologies for the long post but I wanted to get as much detail into the post as I could.

Between myself and my wife we have approximately 300,000 AUD to invest most of these funds are currently held in overseas currencies in bank accounts (GBP & EUR).

We worked and lived overseas for a number of years before the financial crisis the financial crisis hit, we moved back to Australia and our savings took a huge hit due to the currency swings. I initially thought they would recover soon based on no real research apart from wishful thinking perhaps then when they finally staged some sort of recovery I like many people got greedy and thought they would only rise more.. as we now know that didn't happen and here we are quite a few years later with lost opportunity as both property and stock markets have done well over the last few years have not totally missed out as we managed to purchase an apartment in Sydney which has done well however that was just luck in market timing..

We were initially thinking of buying an investment property with our savings as this seems the default setting for most Australian households I have always been interested in the stock market and held a few stocks over the years but no big financial exposure.

The more I thought about it last year the more I thought perhaps investing our money into the stock market would be a better plan for 2 reasons 1 I think the Sydney property market has had its run at least for now whether there is a slow down or crash surely we cannot have another few years of growth like the last.. and 2 what is my goal well the goal is to invest reinvest dividends add to the holdings and be in a position one day to live hopefully mostly from income stream of dividends which I believe are better than receiving rent as an income given all the costs associated with holding property..

My experience with leaving our money overseas was a valuable one it taught me that I would be the type of investor to hold on too long if I bought individual stocks.

So plan for 2017 would be to invest the money in LIC's that pay fully franked dividend take part in DRP and add to holdings (Was thinking of taking line of credit against mortgage and invest within next couple years to add to holding).

the two LIC's which I like are WAM & MIR both have good history of paying dividends and performance. however both seem to be trading above the NTA at the moment by what seems a substantial amount?

Do you think this in general is a sound plan?

should I wait for the NTA to come down but if I plan on holding for 20+ years would it all come out in the wash?

am also thinking of setting up a trust as my wife is not currently working so divert the income from dividends into her name and also my children once they are old enough in 15 or so years I would assume my dividends would cause me some tax pain! 
I am going to ask my accountant as I trust him as for asking financial planner have only had one experience many years ago with my parents and it was not a good one so hesitant about seeking advice there..

Alternative would be to set up SMSF which as I understand it be more tax effective in terms of income streams later in life but downside side then all money including dividends are locked away..

what are your thoughts?


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## R35 (22 January 2017)

Hi Apindex,

I don't normally respond to trading sites but sometimes it worth helping out so here goes but remember 
be careful where you get your advice from as you have already noted above.

I am a bit like yourself as in having lived offshore for many years then returning, but I was a little different as I pumped my extra cash into Oz inner city RE and Hedge Funds whilst offshore then used tax arbitrage strategies whilst offshore to maximize my after-tax returns(legally). I just copied Michael Yardneys RE strategy from the mid 90's...

Now that you are onshore you will have less(no) opportunity to tax arbitrage given Oz residents are globally taxed. Given the increasing amount of data matching with offshore tax jurisdictions I would not even think about going to the dark side with cutting corners with the ATO. Don't be tempted just because you have assets offshore currently.

Assumptions:
- you have a job that pays the bills for the family and this $300k is essentially "risk capital" that you want to put to work?

- AUD is now your base currency ?

***********************************************************************
I would convert the (EUR and GBP balances) to AUD  - take the loss and move forward and no more nights of hoping and dreaming of break even - whats done is done.  Yes I have had to give the same advice to friends who moved back from the UK a few times (painful) - most expat investors get burned on FX. Just think of the opportunity cost of not converting?

The upside is that you can get better returns in AUD anyway....both EUR and GBP have some serious issues to resolve like Brexit and the gradual Euro-ccy disintergration.  USD or AUD are better options.

Option 1: The lazy investor option - Read Michael Yardneys books
If you wanted to invest in RE I normally go 80% LVR and borrow to purchase good quality inner city RE...you need to study RE and work out a strategy for investing but the down side is you need to service the interest-only loan...time to build a family balance sheet and monthly cash-flow report in Excel and do some scenario testing for affordability. My advice is to buy local assuming you live in one of Australia's cities, avoid apartments/town houses (anything on a Body Corp) like the plague if you can afford it. Local knowledge is critical. Given Oz Long term demographics, inner city RE is a no-brainer as long as we keep immigration flowing and don't go into recession.

Option 2: Ed Seykota Market Wizard advice.
If you don't want to go down the RE path then why not give the responsibility of investing your money to a well managed investment fund?

I spent years building a holy grail trading system when all I had to do was search for a decent fund manager and let them leverage my money for me...would have saved myself BIG bucks if i did this earlier....(big hint!) . There are a handful of good onshore Oz managers to pick from - go for it!
This applies to Equities/FX/Commodities and Commercial property.

The hardest part is opening the monthly investor statement in the mail/email to check your returns - how hard is that?

Options 3: The stupid option.
Invest in a few poorly researched stocks hoping for decent returns?
Investing for franked dividends?
Investing without a plan?

Finally - Tax advice 101:
Income splitting should "always" be done where possible - just get the green light from the Accountant first as they can help you pick the correct "entity".

Good luck...


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## GlobeTrekker (22 January 2017)

WAM is currently trading at a 20% premium to NTA and MIR is trading at over 25% which seems way too high.  I own some WAM shares but I wouldn't be buying any more while the premium is so high.  There are other bigger, safer LICs like ARG and AFI currently trading at close to NTA.  Depends on what your risk appetite is though.


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## OmegaTrader (23 January 2017)

APINDEX said:


> Hi All,
> 
> Apologies for the long post but I wanted to get as much detail into the post as I could.
> 
> ...




The first question
What is the purpose of the investing, enjoyment, retirement or to beat the market semi proffesionally?

Also
The whole picture is needed.
1) what is you risk tolerance?
2) what is your income?
3) when are you going to retire?
4)What is your living expectations currently and  in retirement?
5)Do you own your own home/ other assets, is your whole nest egg only 300k?
6) what is your taxation situation
7)Are you aiming for gov assistance/ pension/medicare in older age?


8)  Determining if a fund has a history of outperforming the passive diversified 'market' strategy on a risk adjusted after fees, transnational costs basis is a good place to start


Chart looks better than market.
but fees, transaction and tax costs need to be adjusted for.

I don't know  risk adjusted returns, googling would probably find it...

http://www.morningstar.com.au/LICs/NewsAndQuotes/WAM


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## Rypieee (23 January 2017)

**LONG POST**

Disclaimer: I am working in a financial planning role (Admin) with the intention of becoming a full-fledged financial adviser in the future, therefore, my thoughts and recommendation would be bias in certain aspects so please take note! I am not an accountant, nor do I have an accounting background, however, I do have friends in the industry and am relatively comfortable on commenting on the basic of trust accounts!

Base on the information you have provided, you sound relatively young (30-40 y.o) and have a strong financial setting in place. On top of that you have more than one child and it is not 15 years (age 18) whereby the trust you intent to set up to "redirect" income is able to work to it's fullest potential - noting that your partner is also not working, there is still room for tax effective strategies in this stage - Is your partner intending to go back to work in the future? You might have to consider that in the strategy of a Trust over the medium term time frame.

As R35 has mentioned above, you have to decide whether changing your funds back to AUD is something that you can accept and also note his geo-political comments on those currencies. Once you get through that stage, you can then look at options within Australia and what to do with the funds.

Is the apartment that you currently own in Sydney your main residence or an investment property? If the apartment is an investment property, do you currently rent or live in a separate housing? What are the numbers on the property that you are staying at (be it the Sydney apartment or else where) as you might decide to pay down the outstanding loan if the debt levels are relatively high(we might "potentially" be looking at increasing cash rates over the coming years which would lead to higher cost of borrowings). I tend to lean towards getting debt down to a more manageable level as interest on loans are a definite whilst return on investments is never definite, regardless of whether the rate of returns far outweighs the cost of borrowing.

**If you are renting a property for your family while having the Syd apartment, just watch your negative gearing levels as you might wish to take advantage of the benefits provided.

Have you thought about realising the capital gains on the Sydney apartment, whether it is an investment property or family home (rental markets are looking pretty attractive at the moment). Only reason why I brought this up is because you seem aware that the property market is running it's way, especially in the inner-city area and as R35 mentioned as well, RE will continue to boom if immigration keeps up and we don't go into a recession. If i was in your situation, I might decide to sell the property (if you have tax strategies in place to minimise CGT - applies only if the apartment is an investment property) and rent for the time being(if the Syd Apartment is your family home) until the market cools off before re-entering at a hopefully cheaper price. But of course, this depends on your personal circumstances such as kid's schooling being nearby etc so that is up to you to figure.

If you are thinking of taking out a line of credit to fund the investment plan(that re-invests) then you will have to take extra care with your debt management on the mortgage loan. Some risk that I can see for yourself in the near term future (assuming your children are between 1-5 y.o) is that child expenditure does increase significantly as they enter their schooling ages. Also important if your partner is intending to go back to work, childcare cost should be a factor to consider. And as I mentioned before, cost of debt is definite, rate of returns are not, hence my bias towards debt control. Don't take this as me saying debt isn't great though, good debts that generate positive cashflow is a plus as long as it is managed well.

I was a bit surprised when you mentioned that you were looking at income-generating/dividend paying investment options and the first guess would be that of course your partner can take advantage of the tax-free/lower tax thresholds for the income and gain on the franking dividends. Normally, dividend-style investors tend to be closer or is at retirement and relying on their investments to fund their lifestyle and that the franking benefits are a bonus to them.

Is the income from the investments important to you and your partner? You mentioned that you are happy to add to the holdings overtime which gives me the impression that the income generated will not necessarily be needed? 

While income generated funds are sound and provide benefits to certain individuals (your partner's tax thresholds) you might want to consider growth-style funds as well. In fact, you can build a portfolio of managed funds/LIC (consider the fees on the managed funds as well) such as:

1) 20% International Equities (Magellan Global Fund)
2) 20% Australian Equities on Value investing (Roger Montgomery)
3) 40% Australian Equities on Dividend investings (Antares Dividend Builder)
4) 10% Australian Equities on Long/Short (Regal Long Short Fund)
5) 10% Australian Equities on High Conviction (Macquarie High Conviction Fund)

The aim of this model portfolio would be to grow your assets over a long period (7 years +) of time while generating a smaller (than what you wanted) income. In fact, you could have a look at your partner's tax threshold and decide that you want them to receive a rough estimate of $17,000 a year in income (including franking) and base your investment amount into dividend seeking funds accordingly.

Example: Anatares generated 7% in income last year and they have given the expectation of the fund to generate 8% in income including franking dividends - although you shouldn't be using historical data to forecast future income but let's go with that.

In order to get your $17,000 using an approximate forecast figure of 7.5% in income, you will need to invest $225,000 (est) into Antares to get that figure. From there, you can mould your model portfolio accordingly with the remaining funds.

Moving onto Self-Managed Super Funds (SMSF)...

A Super Fund account is a late-game type of strategy or if you have an excessive amount of income and you wanted to direct them into your super account via salary sacrifice($30,000p.a decreasing to $25,000p.a in july 2017 based on on your presumed age) and achieve tax benefits (lower income tax) from there. I am confident that you are aware of the benefits within a super fund already but this is some highlights for a super account.

1) Salary Sacrifice amounts are taxed at the concessional rate of 15% up until the maximum threshold of $30,000p.a at the present moment.
2) Any capital gains or earnings on your investment within the super fund is also taxed at the concessional rate of 15% - further more, capital gains tax on asset held for more than 12 months is reduce to 10% CGT.

With a SMSF, you mentioned that you "like" property as do all australians as a form of investment, you can purchase a property within your SMSF (investment property) and keep that within your SMSF until you retire. Understand that CGT and earnings(rental income) on the property is taxed at 15% the whole way through. In fact, you can finance a mortgage loan on your investment property within the SMSF using a bare trust, but financing within a SMSF cost roughly around 7-8% on the loan and the LVR required or recommended is about 50% so you need a substantial amount of funds within your super account to begin with.

The most important thing for this strategy is that your income from your employment is relatively high and that your super contributions from your employer can offset the repayments of the loan & principal while having other income-generating assets within your SMSF assist with the loan repayment.

Please don't take this as financial advice or accounting advice and please see a professional before making any big decisions. I am sorry that you had to experience a bad financial planner in the past as many would have but I hope that I will be able to change people's perception on us


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## Rypieee (23 January 2017)

Edit to my post above under superfund highlights: 

salary scarifice + employer contributions makes up the total figure of $30,000. 

Apologies for forgetting employer contributions and the fact that it is extreme vital to consider your employer contributions levels if you are considering salary sacrifice


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## tech/a (23 January 2017)

I don't use Financial planners.
I have 2 friends who are financial planners.

I find the industry severely lacking.
They cant properly advise --- most can only sell the products their master licensee controls. 

I don't know anywhere else where very wealthy people contact not so wealthy people to get advice on creating wealth??!
*OR*
Not so wealthy people contact other not so wealthy people to get advice on creating wealth.

I find my CPA and Solicitor are fine.


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## APINDEX (23 January 2017)

Hi All,
Thanks everyone for the advice..
R35 I wish I pumped that money in Sydney property or at least something whilst I was over there..
to answer your question yes I have a job that pays bills, mortgage etc and the 300K is essentially capital to put to work..

Omega to answer your questions
) what is you risk tolerance? over the long term am willing to expose myself to small/midcaps etc for better returns not too worried about short vol
2) what is your income? approx 100K
3) when are you going to retire? well as as soon as i could but realistically 20-25 years
4)What is your living expectations currently and in retirement? modest right now would like 150-200 passive income in retirement with PPOR paid off
5)Do you own your own home/ other assets, is your whole nest egg only 300k? own home/unit in inne Sydney purchased 600K current val approx 900
6) what is your taxation situation PAYE
7)Are you aiming for gov assistance/ pension/medicare in older age? NO

Rype

I am in early 40's
my child is still toddler
unit is main residence selling would only be an option tp upsize later one at some stage
line of credit would probably down the track perhaps year or two if market throws up opportunities and budget allows although even if rates rise the dividends from LIC would cover more interest than investment property leaving me out of pocket less would probaly only borrow 100K

I am not income focussed at all right now I would reinvest all of the dividends reason I would leab towards LIC's is that in 20+ years when I do want income they will pay fully franked dividends am I wrong thinking this way?
as I think I could get the growth now and then income later?

the only reason I was thinking SMSF is when I retire the income would be more tax effective is this right? will check with my accountant on this..


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## Rypieee (23 January 2017)

APINDEX said:


> Rype
> 
> I am in early 40's
> my child is still toddler
> ...




Sorry I didn't check out the LICs that you listed to see what sort of play they are trying to implement but ideally, you would want your funds in a growth-style fund to grow quicker before transitioning to an income-style fund further down the road with the expectation that the growth-style fund would grow at a much faster pace for the next 20-25 years. Adding funds and re-investing will help compound that rate of increase. I'm fairly certain that we are on the same page anyways so I won't add more to it

I don't quite understand your last question but I shall answer with the following:

Irregardless of whether you have a normal retail superannuation account held with say... MLC or a Self-managed Super Fund, when you retire, you will be transferring your superannuation account into a pension account phase. Within a pension account, any earnings or CGT liability becomes zero and on top of that, the dividend that you receive will not get taxed + you get the full franked credits back as your tax liability is zero.

Imagine if you accumulated stocks within your super account with a starting capital of $100,000.00 and by the time you retire, the same stocks are worth $300,000.00, you can transfer that stock portfolio to your pension account and sell it all down at no CGT!

Or if you bought a house within your SMSF for $400,000 10 years prior to retirement and when you hit retirement, you allocate that house to your pension account and sell that property down for $800,000
with no CGT implications


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## OmegaTrader (24 January 2017)

*This is not Advice Do your own research *

Some more questions...
1) Could you deal with a GFC style drop in the portfolio?

 Ball park figures the market standard deviation moves are 12-14% per year and recent big downward spikes can be 30%+ per year unless you go back to the great depression which is the extreme of the extreme.

Looking at the charts,  MIR fell 25% around GFC and WAM fell 50% . That hurts...

Losing $150,000+ ??? 

To counteract this people may but a portion is cash/ safer assets


2) what is your living expenditure per year currently?
4) How much is your home loan and re payments on house 
5)  What other assets do you have?


But lets work with the numbers here already and throw out some figures.

150,000 passively not taking out capital.
This return would have to take into account inflation and taxes as well.
money in 25 years time upon retirement

Investment Nest egg needed
1% return          15 million
3% return           5 million
5% return           3 million


150,000 passively  taking out capital and living for 25 years after retirement. Spending the kids inheritance...No gov assistance.Increasing you drawings by 3% per year.
Returns after tax and inflation

Investment Nest egg needed         

1% return             ~4.75 million
3% return             ~3.64 million
5% return             ~2.86 million

So given your expectations and assumptions, 3-5 million is needed for 150,00 income in retirement 25 years away.

But 150,000 is 25 years will not be the same as 150,000 now when you retire.
at 3% inflation pa it would be $71,640, so in today's terms you would would be about $314 066


Given that assumption say 300,000 as income in retirement was needed (in 25 years time)and increased at 3% pa

No capital withdrawal                                                   Capital withdrawal to 25yr death

Investment Nest egg needed
1% return          30 million                                           9.5 million
3% return           10 million                                          7.3 million           
5% return           6 million                                             5.73 million


It looks like alot, but there is still 25 years to go and remember that money will be worth alot less in 25 years if inflation continues.




Now the question of how to get there.


Everyone will tell you something different
I can't tell you which country to invest in, although the basic financial principles will remain the same.
Is Europe going to better or Australia, I can't answer that either.
Is property going to go up in Sydney, Also I don't know that one 

With the tax situation, super, negative gearing and main residence exemption, capital gain discounts, dividend imputation or trusts are simply a way to reduce tax. Tax and transactional/setup costs should be factored into the investment analysis.

look at all the options risk adjusted returns, take of fees and tax. then decide if that fits in with your personal preferences.

A fund has to produce more than buying and holding the market strategy on a risk adjusted basis. If not what is the point

So lets see if money is put away each year and 300k starting capital
return after fees and taxes

20,00 saved increases 3% pa 

3% return             1.65 million
5% return             2.3 million
12% return           8.4 million


30,000 saved increases 3%pa

3% return     2.15 million
5% return     2.95 million
12% return   10 milion














GlobeTrekker said:


> WAM is currently trading at a 20% premium to NTA and MIR is trading at over 25% which seems way too high.  I own some WAM shares but I wouldn't be buying any more while the premium is so high.  There are other bigger, safer LICs like ARG and AFI currently trading at close to NTA.  Depends on what your risk appetite is though.











http://www.morningstar.com.au/LICs/NewsAndQuotes/AFI
http://www.morningstar.com.au/LICs/NewsAndQuotes/ARG


1) safe?
2) what are the fees for?


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## skyQuake (25 January 2017)

Some great stuff here. Have a look at the performance of LiCs which have been trading at discounts!
The last thing you want when trying to get out is an even bigger discount after sustained periods of fund underperformance
Also be wary of funds whose performance only starts after 2009


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## GlobeTrekker (26 January 2017)

OmegaTrader said:


> 1) safe?
> 2) what are the fees for?



The underlying assets in AFIC & Argo move pretty close to the index.  Whether or not they are good value or safe (in the particular case of AFIC & Argo, not necessarily all LICs) comes down to how big a premium or discount they are to their NTA (ie their share price vs the underlying assets they hold). 

Back in 2007/2008 AFIC & Argo were trading at big premiums to their NTA, which essentially meant their share price was overvalued at the time compared to the assets they held.  I would've said that because of this reason they were not safe at that time because those premiums were not sustainable.  Now AFIC's share price is about the same as NTA and Argo's is at a slight discount to its NTA.  The comparative outperformance of the index compared with AFIC & Argo's share price over the period you've chosen is mostly due to the reduction in the premium, their NTA's have been quite similar to the index.  Now that they are at a slight discount I would regard them as being fairly safe compared to the index at least. 

LICs need a different type of analysis, you can't just look at the history of their share price to determine whether or not they are good value, you need to look at the performance of the underlying NTA and the premium/discount and the historical premium/discounts.  Timing is a big factor.  As SkyQuake points out though, some LICs are at a permanent discount, so the discount itself is not necessarily the best indicator for all LICs.


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## OmegaTrader (26 January 2017)

GlobeTrekker said:


> The underlying assets in AFIC & Argo move pretty close to the index.  Whether or not they are good value or safe (in the particular case of AFIC & Argo, not necessarily all LICs) comes down to how big a premium or discount they are to their NTA (ie their share price vs the underlying assets they hold).
> 
> Back in 2007/2008 AFIC & Argo were trading at big premiums to their NTA, which essentially meant their share price was overvalued at the time compared to the assets they held.  I would've said that because of this reason they were not safe at that time because those premiums were not sustainable.  Now AFIC's share price is about the same as NTA and Argo's is at a slight discount to its NTA.  The comparative outperformance of the index compared with AFIC & Argo's share price over the period you've chosen is mostly due to the reduction in the premium, their NTA's have been quite similar to the index.  Now that they are at a slight discount I would regard them as being fairly safe compared to the index at least.
> 
> LICs need a different type of analysis, you can't just look at the history of their share price to determine whether or not they are good value, you need to look at the performance of the underlying NTA and the premium/discount and the historical premium/discounts.  Timing is a big factor.  As SkyQuake points out though, some LICs are at a permanent discount, so the discount itself is not necessarily the best indicator for all LICs.




*Simple. You beat the index or you don't beat the index-on a risk adjusted basis. *

The rest is neither here nor there.

When I buy when I don't  buy I could be waiting 3+ years for a damn discount. Are they safe are they not safe. Is the discount reasonable or too much. Just opinion and talking. Everyone says something different. 


Even your post/analysis is contradictory especially for a beginner.



> their NTA's have been quite similar to the index. Now that they are at a slight discount I would regard them as being fairly safe compared to the index at least.




So look for lower NTA to get good value. 



> the discount itself is not necessarily the best indicator for all LICs.




BUT NTA is not a good indicator


What???? I am even more confused

There is no way a retail investor like the OP can make meaningful decisions without legwork.


The whole point of investing in a fund for most people is to do less work not more, otherwise you might as well actively invest and research companies. The extra time and effort is not justified for most people.

That is why you pay the fund managers the fee-to manage, not to wait for good value in a fund.That is a completely different strategy.


Beat the market or just go cash and shares/index. 

Silly buggers is for people who know how to play the game...


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## GlobeTrekker (28 January 2017)

OmegaTrader said:


> *Simple. You beat the index or you don't beat the index-on a risk adjusted basis. *




Ok, I'll make it simple for you:  If you buy AFIC or Argo when they're at a premium to NTA (ie their share price is higher than their NTA) you're unlikely to beat the index in the long term (you're probably better off with an index ETF).  If you buy when they're at a discount you probably will beat the index in the long term.  If you buy them when they're close to their NTA (as they are now) you'll probably match the index, ie they are reasonably safe as compared with the index if you hold for the long term, which sounds like what the OP was wanting to do.  My original post was not suggesting that the OP waits until they're at a discount, it was suggesting that they are decent (fair) value now. 

My response to your post was to point out that you can't just look at past share price performance of an LIC compared to the index to determine whether or not they are good value now.  I don't know how familiar you are with LICs, but they are a different animal to normal shares.  Particularly with the big LICs like AFIC and Argo, if their share price has fallen whilst the index (and their NTA) has risen that can actually be a fantastic opportunity to buy (especially if they move to a big discount to NTA).  Your analysis was suggesting the opposite.  Again, I'm not suggesting the OP waits for this to happen, I'm just pointing that a drop in share price vs the index is not necessarily a bad thing when looking at whether AFIC or Argo are currently good value or safe, especially if you're planning to hold them for the long term.  Nor am I suggesting that you need to switch between buying & selling them when they move between discount & premium.  If you buy them when they are at decent value (like now) you can pretty much set and forget, as the OP seems to want to do.  Buying them at a discount is just a bonus, you'll get additional value, but its not necessarily worth waiting around for it to happen if you are just wanting a 'set and forget' investment.   



OmegaTrader said:


> Even your post/analysis is contradictory especially for a beginner.
> So look for lower NTA to get good value.
> BUT NTA is not a good indicator.
> What???? I am even more confused.



My analysis was not contradictory.  I didn't say you "_look for a lower NTA to get good value_", what I said was pretty much the opposite - I said "_Now that they are at a slight discount I would regard them as being fairly safe_".  If an LIC is at a discount it means the NTA is above its share price, not lower. 

Nor did I say "_NTA is not a good indicator_", I said that "_a discount is not a good indicator for all LICs_".  A discount is a pretty good indicator of good value for AFIC & Argo but not necessarily a good indicator of good value for other LICs.  There are around 100 LICs listed on the ASX and they behave differently, so buying some of these other LICs just because they're at a discount is not a wise thing to do without researching them properly first.


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## OmegaTrader (28 January 2017)

GlobeTrekker said:


> Ok, I'll make it simple for you:  If you buy AFIC or Argo when they're at a premium to NTA (ie their share price is higher than their NTA) you're unlikely to beat the index in the long term (you're probably better off with an index ETF).  If you buy when they're at a discount you probably will beat the index in the long term.  If you buy them when they're close to their NTA (as they are now) you'll probably match the index, ie they are reasonably safe as compared with the index if you hold for the long term, which sounds like what the OP was wanting to do.  My original post was not suggesting that the OP waits until they're at a discount, it was suggesting that they are decent (fair) value now.
> 
> My response to your post was to point out that you can't just look at past share price performance of an LIC compared to the index to determine whether or not they are good value now.  I don't know how familiar you are with LICs, but they are a different animal to normal shares.  Particularly with the big LICs like AFIC and Argo, if their share price has fallen whilst the index (and their NTA) has risen that can actually be a fantastic opportunity to buy (especially if they move to a big discount to NTA).  Your analysis was suggesting the opposite.  Again, I'm not suggesting the OP waits for this to happen, I'm just pointing that a drop in share price vs the index is not necessarily a bad thing when looking at whether AFIC or Argo are currently good value or safe, especially if you're planning to hold them for the long term.  Nor am I suggesting that you need to switch between buying & selling them when they move between discount & premium.  If you buy them when they are at decent value (like now) you can pretty much set and forget, as the OP seems to want to do.  Buying them at a discount is just a bonus, you'll get additional value, but its not necessarily worth waiting around for it to happen if you are just wanting a 'set and forget' investment.
> 
> ...




1)Please prove your claims
If you buy when they're at a discount you probably will beat the index in the long term.

After fees, transactional,spread costs  as well?????
After opportunity cost of waiting
After opportunity cost of time

Why not do it yourself for all that effort

2) Fair value does not take into account future losses in value
only what it is worth now.

Nothing is safe...


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## nioka (28 January 2017)

1. A forum like this is not the best place to get advice. What you can get here is information.
2. Never invest more than you can afford to lose.
3. Investment advisers are notorious for being wrong.
4. The bigger the gain looks the bigger the risk may be.
5. You make your own luck.
6. Investment funds cream off the top. Those investing get what is left over.
7. Research is absolutely essential. Using the research of others is helpful but be sure it is interpreted correctly and honest.
8. Gut feelings can help. Only if followed up with research.
9. Money doesn't buy everything in life.
10. Money doesn't buy happiness. (It can help you be happy).


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## APINDEX (29 January 2017)

Hi All,

Thanks very much for your advice..
Rypieee:
what I mean about super was would I be better off feeding the 300K into my super either my current industry super or set up SMSF the pro's and con's I could see would be obv like you say pension phase then the money becomes tax free however there are limits on amount you can have in pension phase I believe? and doanside is of course the money including returns are locked away not that I intend to use them but you never know in say 10 years I may elect to take some dividends instead or reinvesting..

Omgea,

yes I feel I could definitely deal with GFC drop in portfolio over the next 10-15 years if this did occur I would use the opportunity to add to my portfolio whilst LIC's were cheap.
can afford living expenses and mortgage so essentially this money if to invest and compound for long term..
Globe trekker,

yes I have looked at bell potter LIC reports to both see NTA returns, average discount/premium 

I only used WAM & MIR as 2 examples others include MLT for index like returns and AMH both of which are trading near their NTA's.


Nioka,

Thanks very much your all of your points are sobering and sound very valid.

One last question do those of you that do invest in LIC's partake in the DRP or again depends if the LIC is trading a high value vs NTA maybe better to take div and buy something else at better value after all discount is usually only around 2.5%?

Thanks for all your insights...


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## OmegaTrader (29 January 2017)

APINDEX said:


> Hi All,
> 
> Thanks very much for your advice..
> Rypieee:
> ...



good luck
just read noika's post 

Especially point 6


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## GlobeTrekker (29 January 2017)

OmegaTrader said:


> 1)Please prove your claims
> If you buy when they're at a discount you probably will beat the index in the long term.
> 
> After fees, transactional,spread costs  as well?????
> ...



The last time both funds were at a big discount was around the end of 2011.  Run your comparison graphs with the All Ords from Dec 2011 to now and I'm pretty sure you'll find that ARG and AFI outperformed the index from then.  If you can be bothered (I certainly can't) you can do the same for other periods when they were trading at a discount.  This LIC report from Pattersons has graphs (in the second half of it) showing when each LIC was at a premium & discount.  It also has the top 20 or so shares that each LIC owns - very handy for a general idea of what each of the different LICs invest in.

http://wilsonassetmanagement.com.au/wp-content/uploads/2016/09/Patersons.pdf

Re fees, ARG and AFI don't charge a fixed fee as a % of assets held (lots of other LICs do though).  Their management expense ratio (MER) is 0.16% which compares very favourably with management funds who typically charge at least 1% pa, sometimes with outperformance fees as well which can eat away at your returns over time (especially as they never credit back 'underperformance fees' in their 'off' years!).

Again, I'm not suggesting that you should wait around until the next big discount, that could be years away - I agree that there may be a big opportunity cost if you sit around waiting for a discount, the market could rise another 10% before they move to a discount again and you will have missed out on that rise whilst waiting.  A discount is just a great time to top up your holdings if you're aware of it, you're effectively buying the index but at a cheaper price (the AFI or ARG share price) than what the underlying shares are worth (NTA).  Its actually just pretty simple maths and common sense for those who figure out how the discounts/premiums work, but not worth worrying about if you just want to 'set and forget'.    



APINDEX said:


> yes I have looked at bell potter LIC reports to both see NTA returns, average discount/premium
> I only used WAM & MIR as 2 examples others include MLT for index like returns and AMH both of which are trading near their NTA's.



MLT are pretty similar to AFI and ARG, again decent value.  They hold a bit more of the big 4 banks in their portfolio (over 30%) than ARG do (around 20% I think), so if you're worried about holding so much in the banks and/or banks being overpriced then maybe go with ARG.  BKI are another biggish LIC who's price is currently trading close to its NTA, also a decent company.  I don't own any AMH and I don't know much about what they invest in, or how risky they are.  Look, WAM and MIR may well keep performing and may outperform others over time (they don't try to mirror the index in the stocks they hold, they're a lot more selective, lots of mid-cap stocks).  I certainly hope so as I hold some WAM (which I bought when it was at a discount a few years ago) but I won't be buying any more while the premium is so high, I see it as a bigger risk and I see better potential value in other LICs.  Happy to hold what I have though for now as returns are still decent.  If you want to diversify a bit more you could also look at LICs who invest in overseas companies like PMC, TGG, PGF, FGG and MFF.   



APINDEX said:


> One last question do those of you that do invest in LIC's partake in the DRP or again depends if the LIC is trading a high value vs NTA maybe better to take div and buy something else at better value after all discount is usually only around 2.5%?



Depends how much time you want to put into it.  I don't partake in the DRP because I prefer to decide myself which LICs are the most attractively priced at the time.  As per your example, towards the end of 2015 ARG was trading at a very high 10% premium (they've been over 15% at times in the past), I wouldn't have wanted my dividends being used to buy more of it at that premium when there was better value around at the time.  But that takes time & research to find.  If you don't have that, and want to just 'set and forget' then the DRP is fine, it will even out over time I guess as there will be other times that the DRP will be buying shares at a discount.


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## OmegaTrader (30 January 2017)

> Run your comparison graphs with the All Ords from Dec 2011 to now and I'm pretty sure you'll find that ARG and AFI outperformed the index from then.




http://www.morningstar.com.au/LICs/NewsAndQuotes/AFI
http://www.morningstar.com.au/LICs/NewsAndQuotes/ARG

*NO and NO*





*
NO*
18.91% < 20.19%
No dividends included
No fees included




*
NO*
19.2% < 20.19%
No dividends included
No fees included


 0.16% is being charged for doing what?

Sometimes I wonder.....

Better to give up and passively invest  ??


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## jmg86 (31 January 2017)

OmegaTrader said:


> No dividends included




These are somewhat important. 

Net of fees and Tax Argo vs. Pre-tax & Pre-fee equivalent ETF.


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## GlobeTrekker (31 January 2017)

OmegaTrader said:


> *NO and NO*
> 
> 0.16% is being charged for doing what?
> 
> ...



Not at all.  Your comparison graphs are from January 2011.  I said Dec 2011, not January 2011.  In January 2011 ARG and AFI were at a slight premium, not a discount.  In December 2011 they were at a discount, which is the point you challenged me to prove (that if buying ARG or AFI at a discount, you'll beat the index in the long term).  If you run the numbers from 31 Dec 2011 to date:  XJO=39.3%, AFI=45.4%, ARG=50.4%.  Even better, run the numbers from 31 March 2012 when the discount to NTA was even bigger for both companies, you get XJO=32%, AFI=41.5%, ARG=47.5%, an even bigger spread, exactly as you'd expect:- the bigger the discount, the greater the outperformance, because you're effectively just buying the index but at a discount.  Buying AFI or ARG at a 10% discount is like buying $1 index ETF shares for 90 cents each.  Great time to buy.

Right now though, they're trading at close to NTA, so you're unlikely to get any major outperformance, but you should still match the index pretty closely (over the long term).

You're complaining about a 0.16% MER?  That's less than just about all the ETFs on the market and certainly less than any managed fund.  What exactly are you going to passively invest in that has an MER less than 0.16%?


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## skyQuake (31 January 2017)

GlobeTrekker said:


> Not at all.  Your comparison graphs are from January 2011.  I said Dec 2011, not January 2011.  In January 2011 ARG and AFI were at a slight premium, not a discount.  In December 2011 they were at a discount, which is the point you challenged me to prove (that if buying ARG or AFI at a discount, you'll beat the index in the long term).  If you run the numbers from 31 Dec 2011 to date:  XJO=39.3%, AFI=45.4%, ARG=50.4%.  Even better, run the numbers from 31 March 2012 when the discount to NTA was even bigger for both companies, you get XJO=32%, AFI=41.5%, ARG=47.5%, an even bigger spread, exactly as you'd expect:- the bigger the discount, the greater the outperformance, because you're effectively just buying the index but at a discount.  Buying AFI or ARG at a 10% discount is like buying $1 index ETF shares for 90 cents each.  Great time to buy.
> 
> Right now though, they're trading at close to NTA, so you're unlikely to get any major outperformance, but you should still match the index pretty closely (over the long term).
> 
> You're complaining about a 0.16% MER?  That's less than just about all the ETFs on the market and certainly less than any managed fund.  What exactly are you going to passively invest in that has an MER less than 0.16%?




AFI was never at a 10% disc, even with delayed monthly reporting, there were lots of folk monitoring the LiCs. 
http://www.asx.com.au/documents/products/LIC_NTA_December_2011.pdf
Dec11 was 6% disc to pre-tax NTA but 6% prem to post-tax NTA. 
http://www.asx.com.au/documents/products/lic_premiums_discounts_to_nta_200706.pdf
Jun11 was also 6% disc to pre-tax NTA... buying that disc wouldnt have ended well

There's also survivorship bias there, lots of the LiCs from 2007 or even 2011 have since closed down


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## OmegaTrader (31 January 2017)

jmg86 said:


> These are somewhat important.
> 
> Net of fees and Tax Argo vs. Pre-tax & Pre-fee equivalent ETF.
> 
> View attachment 69780




1) How do you work out the tax component?
2) why pay etf fees?
3)Who prepared the graphs?


http://www.asx.com.au/asxpdf/20170123/pdf/43fgkf7pk3f1zb.pdf







GlobeTrekker said:


> Not at all.  Your comparison graphs are from January 2011.  I said Dec 2011, not January 2011.  In January 2011 ARG and AFI were at a slight premium, not a discount.  In December 2011 they were at a discount, which is the point you challenged me to prove (that if buying ARG or AFI at a discount, you'll beat the index in the long term).  If you run the numbers from 31 Dec 2011 to date:  XJO=39.3%, AFI=45.4%, ARG=50.4%.  Even better, run the numbers from 31 March 2012 when the discount to NTA was even bigger for both companies, you get XJO=32%, AFI=41.5%, ARG=47.5%, an even bigger spread, exactly as you'd expect:- the bigger the discount, the greater the outperformance, because you're effectively just buying the index but at a discount.  Buying AFI or ARG at a 10% discount is like buying $1 index ETF shares for 90 cents each.  Great time to buy.
> 
> Right now though, they're trading at close to NTA, so you're unlikely to get any major outperformance, but you should still match the index pretty closely (over the long term).
> 
> You're complaining about a 0.16% MER?  That's less than just about all the ETFs on the market and certainly less than any managed fund.  What exactly are you going to passively invest in that has an MER less than 0.16%?





1) Cherrypicking?
2)shares have no MER?, I just press buy and re-adjust every now and then and I don't have to pay .16% for nothing
3)How do you know the discount of the market is justified and when it is not justified
4)XJO does not include dividends


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## jmg86 (31 January 2017)

OmegaTrader said:


> 1) How do you work out the tax component?
> 2) why pay etf fees?
> 3)Who prepared the graphs?




1.  Will be dependent on each investor but Corp Tax rate a start.  
2.  Because the ETF providers charge them.   STW for instance charges .19% which is more than Argo.
3. Argo did - http://www.argoinvestments.com.au/portfolio-performance/portfolio-performance
 The rolling returns for the years prior where also better than those of last year.  If you look at past Annual reports they are provided.  10 year return to 2010 was 10.6% vs. 7.1% for example.


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## GlobeTrekker (31 January 2017)

OmegaTrader said:


> 1) Cherrypicking?
> 2)shares have no MER?, I just press buy and re-adjust every now and then and I don't have to pay .16% for nothing
> 3)How do you know the discount of the market is justified and when it is not justified
> 4)XJO does not include dividends



(1) Cherrypicking???  Mate, seriously.  You tried to put up an example using a start date when AFI and ARG share prices were both at a premium to disprove my assertion about performance of those shares when they are bought at a discount.  I’ll give you the benefit of the doubt and assume that this was just a simple mistake on your part.  You ended up proving my other point that they will underperform the index if bought at a premium, as you did with your initial graphs.  I picked two dates where they were at a big discount, feel free to pick any other date where the ARG or AFI share price was at a decent discount to its NTA and run the numbers.
(2) The OP is looking for someone else to look after the investment, not to pick stocks himself. 0.16% is about as cheap as it gets.
(3) The discount is simply the difference between the LIC's share price and its NTA (Net Tangible Assets per share, ie the value of all the different shares that the LIC has invested in divided by the number of shares the LIC has on issue).  The assets that make up the NTA for AFI and ARG are shares from the ASX, probably pretty close to the proportions that make up the ASX200.  So if the LIC is trading at a discount (share price < NTA) it means you're paying less for a basket of shares that the LIC holds (via the LIC share price) than you would if you bought all the shares in that basket individually (effectively the NTA).
(4) yes, XJO does not include dividends, neither does AFI or ARG in the numbers that I calculated (I used the same source as you, it was just measuring change in share price, not including dividends reinvested).


skyQuake said:


> AFI was never at a 10% disc, even with delayed monthly reporting, there were lots of folk monitoring the LiCs.
> Jun11 was also 6% disc to pre-tax NTA... buying that disc wouldnt have ended well



I was just using 10% as an example to keep it simple.  AFI did hit 9.8% discount in June 2005, and over 10% discount in 2000/01. ARG's discount was 9.3% in early 2012 and over 15% in 2001.

I think you mean Jun07 rather than Jun11 (judging by the link you had).  Lets face it - buying most stocks in Jun07 didn't end well  That said, AFI and ARG still outperformed the index using Jun07 as the start point.


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## APINDEX (12 February 2017)

Hi All,

Very much for all your input think has given me a lot to think about and some more questions which I will post as new posts...


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