Listed Investment Companies

Find out all about LIC’s, and whether they are right for you.

Read Scott’s latest article on the LIC ARGO Investments here

Listed Investment Companies (LICs) operate in pretty much the same way as retail managed funds, except instead of buying units you buy shares, which trade on the stock exchange. This means that you’ll have to buy and sell through a stockbroker, although the cost of this can be reduced by going through an online broker.

While the underlying value of the assets of the fund can sometimes trade differently from the actual share price (positively or negatively), in the past this hasn’t been an issue for traditional LICs.

There are all sorts of LICs that trade on the stock market, yet the ones we’ll focus on are those that have a solid track record and rock-bottom fees, two of which are Argo investments (ASX code ARG) and the Australian Foundation Investment Company (AFIC; ASX code AFI).

Both companies are large with billion-dollar portfolios, primarily invested into 100 of Australia’s major companies. The returns of these companies have been in line with the major indices (market measures), and their stock track records stretch back decades.

As I’ve said before, there are only two variables you really have control over when investing – the asset class you invest in, and the fees you pay. With this in mind, this is one of the key reasons I personally invest in LICs. AFIC has a total Management Expense Ratio of just 0.12 per cent (at the time of writing), which leaves most other funds for dust.

One downside to LICs is that, unlike many retail managed funds, they don’t offer a regular savings program.

One way of getting around this is to set up an online brooking account, together with the broker’s high-yielding savings account (which they’ll usually require you to have anyway). Have your regular amounts deposited into this account and then every quarter purchase as many shares as you can with the available balance.

Even when you factor in paying brokerage, traditional LICs are one of the most cost-effective ways to invest.

Read more about LIC’s using the links below:

LIC Investment Lessons
LICs – The Pros and Cons

Read the Barefoot Investor Disclaimer