I agree – LICs in Australia are awesome, they certainly offer more consistent dividends. The American index is hard to beat when it comes to diversification etc.. We will look to add lots of both to our portfolio over time 🙂
June 9, 2017
There is a mountain of evidence that supports index funds being the superior investment for long term sharemarket investing.
Despite this, in Australia, I’m quite hesitant to plough all my savings into our stock market index.
This is because the Australian Sharemarket is quite top heavy. The top 10 companies make up nearly 50% of our entire market value. Almost 40% are in the Financials sector alone!
Over in the US however, it’s a totally different story! The US stockmarket is very well diversified. The top 10 companies only make up around 16% of the entire market value.
There is a great spread across different sectors too, with 20% in Financials and 17% in Technology. Then Consumer Services, Industrials and Health Care sectors all have around 13% each. If I was a US investor, I would use index funds with no hesitation.
You may be wondering why not just invest in the US stockmarket, since their index is more investor friendly. The simple answer for me is income.
Dividend yields in the US tend to be around 2%. Very low, compared to the 6% we can get here in Australia.
This means 500k in US shares would provide only around 10k of income. The same 500k in Aussie shares would provide 30k of income.
It’s truly a massive difference! You would need three times as much savings to be able to retire on this income stream.
Remember, our focus is creating a passive income stream to live on. The more sustainable income we can get from our investments, the less we need to save in order to reach financial independence.
Crunching the numbers and comparing income streams is so critical to early retirement, it can’t be overstated. Unfortunately, it’s not just a case of ‘investing’ and eventually it will work out.
Index funds are awesome. You won’t under-perform the market at any stage because index funds match the market index.
The evidence is heavily on the side of indexing, with many professionals failing to outperform the index over time. This is especially true in the US, where fees tend to be higher and a higher percentage of managed funds lose to the index, than here in Australia.
You can be comforted that in 50 years from now, the index will definitely still be around and its value much higher. That makes long term investing about as easy as possible. You will own all the most valuable companies on the market and your index fund will only keep the surviving companies over the years.
But, by owning every company in the index, you also inevitably own some crappy ones. This can be fine, since it’s not obvious which companies are going to do poorly in the future.
If a company does do poorly and falls out of the top 300 (in the case of the ASX 300), you will no longer own it. Owning the index also means owning companies in order of their market size, whether they pay dividends or not.
Index funds are an excellent option, but I think LICs (Listed Investment Companies) are a good substitute for Australian investors wanting to retire early and live on their dividend income stream. (I’ve reviewed a number of Aussie LICs here.)
— The LICs portfolio of shares are often more diversified than the index by sector. Argo’s portfolio – see here
— Most invest with an aim to provide income which increases over time faster than inflation.
— Dividends are often more consistent and more stable than the index. (Investing nerd side note: Because the LICs operate as a ‘company’, they have control over how much dividends they pay out so they can smooth the dividends over time. Index funds operate as a ‘trust’ structure which forces them to pay out all earnings, including capital gains from re-balancing the index. This tends to make the income from the index fund quite lumpy.
— There is sometimes the opportunity to participate in Share Purchase Plans, allowing you to buy more shares at a discount with no brokerage fees.
— Certain LICs tend to avoid companies that pay very low or no dividends, which improves the income of the portfolio and generates a higher level of dividends for shareholders.
— LICs usually offer Dividend Reinvestment Plans (DRP) – this gives you the option to reinvest your dividends, often at a discount without paying brokerage. You will still receive the franking credits and are still required to declare the income.
— Some LICs also offer a Bonus Share Plan (BSP), sometimes called Dividend Substitution Share Plan (DSSP) – where you are able to forgo your dividend in exchange for more shares in the company, often at a discount and pay no brokerage or tax. This can be incredibly tax effective for those in a higher tax bracket. I wrote in more detail about this here – The Surprising Tax Efficiency of Dividend Investing
It’s not all roses and rainbows! With LICs there are more risks.
There are plenty of fund managers out there that have delivered poor results for shareholders and in many cases you’d be better off with an Index Fund.
The manager may start making poor investment decisions or some talented team members may leave. They could also increase their fees unexpectedly. Realistically, fees are much more likely to be lower in the future. Still a risk though.
Some of the risks are manageable though, by owning multiple LICs and those run by managers with a great long term track record, that is more reliant on their investment process, rather than the magic skill of one individual.
The fees of different LICs vary wildly and usually depends on their strategy and turnover. The older style LICs such Argo, Milton and AFIC are fairly ‘index’ like – being weighted towards larger companies.
They tend to be very long term holders of their investments, so do very little selling. Their fees are very low – around 0.16% or less per annum. Check out my LIC reviews page where I look at these companies in detail. And make sure you’re using a very low-cost stockbroker to keep fees down.
Something to remember here is, all LICs are not equal. Many of the more active LICs charge high fees, so this puts them at an instant disadvantage when trying to deliver out-performance for shareholders.
Some LIC portfolio managers have still managed to deliver good out-performance, over time, despite charging higher fees and/or performance fees.
This is true more-so in the LICs that focus on the small-mid sized companies, where the companies tend to be less researched and there is a greater chance to outperform the market. These LICs tend to be much more active. Fees for this type of LIC tend to be around 1% per annum. Some (not all) charge performance fees too.
Honestly, many high fee LICs are rubbish, so it pays to be very selective and only invest with a LIC or manager who has proven themselves by delivering good performance (after fees) for a long time.
A couple of LICs I like in this space are QV Equities, which is managed by Investors Mutual (approx. 1% fee), and Mirrabooka Investments, which is managed by the same guys as AFIC for around 0.6% fee.
I’m obviously a big fan of Listed Investment Companies and clearly biased, but not without reason. Don’t get me wrong, index funds are great too!
I just feel that in Australia, the index is a bit too concentrated in one or two sectors to rely on indexing alone. So here’s my answer to the question “which is better?”…
I would say in the US, indexing is the best option for long term returns, low fees and low fuss. But it’s my view, that in Australia, investing in good quality and proven LICs, are often a better fit for income focused investors. That also doesn’t mean you can’t own both. Each have their pros and cons.
My preferred LICs are the older ones with very diversified portfolios and low fees. By using LICs, we can build a well balanced dividend-paying portfolio, without sacrificing that all important income we need for financial independence!
I agree – LICs in Australia are awesome, they certainly offer more consistent dividends. The American index is hard to beat when it comes to diversification etc.. We will look to add lots of both to our portfolio over time 🙂
So how do LIC’s differ from Managed Funds? And what kind of fees are you looking at? They sound like actively managed investments, which generally means higher fees eating into your returns.
Congratulations on what you’ve achieved. Great blog too and excellent write-up on LICs.
It’s always great to see others as passionate as myself about investing in Shares for income, especially LICs. There’s no better way to invest in my mind.
An important point you raised:
“Quality LICs tend to avoid companies that pay very low or no dividends, such as speculative resources companies. This improves the income of the portfolio and generates a higher level of dividends for shareholders.”
Investors so often focus on whether a LIC consistently outperforms the index. But I’m more concerned with consistency and reliability of dividend income. If a LIC underperforms for a period because it avoids those stocks you mentioned above then that’s fine by me.
I look forward to following your journey.
So how you you allocate your portfolio or Index fund (or ETF) and LIC? Currently I’m in all index ETF of 30% VAS, 30% VTS, 40% VEU.
I have just come across your blog as only recently started taking a look at some of the other Australian investing blogs out there.
Have just read the posts on your journey, the rent v buy, and now this one on LICs & Index funds. Very refreshing to read some well-balanced discussions on those last two topics I mentioned.
I can never get my head around the fact that I rarely run into people who use the strength in Australian property, particularly Sydney & Melbourne, to consider reducing the property exposure in favour of an investment structure that will give your more cash flow and financial freedom.
I like this article also, I come across too many articles that don’t address the issue of lack of diversification in the Australian index when discussing LICs & Index Funds.
I can certainly relate to the post about you and your journey. I shall try and read your other posts and check back now and then. Looks like some interesting topics you have tackled, so I am not just here stalking Austing’s posts ????.
Intriguing, thank you StrongMoney. It’s refreshing to get an Aussie perspective on this. I’m about invest in a mix of Indices, LIC’s but I’ve paused to consider the ‘vehicle’ through which I accomplish this and would like to hear your thoughts. Do you invest through a trust of some sort? Perhaps in the future you could blog on the merits of the most effective (tax, security etc). Many Tks
Just trying to wrap my head around what you’re trying to do. If you were on a higher income would dividend investing would be the most effective way to grow your nest egg if you take tax into consideration. Say you get a dividend of 6% on average. You will be paying tax of 48% since your are in the highest tax bracket. Effectively you get 3.12% return which isn’t that wonderful. Compounding 3% a year will not grow your investment very much at all. If you invested in companies that mainly had capital growth it saves you on paying alot of tax which could eat into your returns. To get your portfolio to a size that is large enough to give you a higher income its gonna take a long time at 3%. It makes the more sense to me if you use this strategy once you have a large nest egg and want to retire and live off your dividends.
Yes I didn’t factor that in. The devil is in the details. Will your funds have capital growth of 3 to 4%?? You have to take more short term risk to get longer term gain. If the companies are paying dividends they aren’t putting that money to use in growing the business. I’m not sure you can have it both types of growth. Its been 10 years since the GFC and the sharemarket has only crepted back to pre GFC levels recently. Most of the growth in the last 10 years was from dividends. The bonus share plans give you a slight discount and no share buying fees but it doesn’t save you tax.
Regarding lowering tax the only effective way I can see is to use imputation bonds. They are a funny structure but basically dividends are paid at company tax rate of 30% ( instead of 48% if you’re on a high income) and if you keep them for 10 years you get to keep everything without paying any capital gains. You can only increase your annual deposits by 125% of the previous years. However the things you can buy within that structure may not be to your liking. And the entry fees, maintenance fees and kickback to financial planners are quite hefty adding to 3% or more! Warren Buffet won that famous bet with the managed funds vs a simple index fund over a 10 years investing period. It was quite telling how much the fees eroded away the returns and even more telling was the pathetic excuse the fund manager gave for his underperformance.
The only thing more tax effective is super where you will pay tax on your dividends at 15% and once you retire all earnings on the first 1.6 million are tax free ( and earnings on super above the 1.6 million cap you only pay tax at 15%). Of course you can’t touch it till you’re 60 years old. No use if you want to retire early.
If you retire and earn no income from any other source you will be in a lower tax bracket IF you have a small portfolio. Paying no tax means you’re not making alot of money (and vice versa)! So if you have shares under your spouse’s and your own name than you can both earn 18K from dividends before you pay any tax. Together you will have 36K to live on. That’s not much. If you both earn 37K each then you will have (37K x2 minus 3.5Kx2 tax) 67K to live on. Thats kind of tolerable if you don’t have kids to feed and a mortgage to pay off. But its not much either.
I haven’t figured out what to do to transition from a capital intensive growth portfolio to a high dividend one. Berkshire Hathaway are attractive to me for this reason if you can swallow the currency risk. If you’ve forgone the dividends than you’ve saved alot of tax but get to pay it back with capital gains where you loose up to 25% in one big hit if you’re in the highest tax bracket. I guess you just sell up in the year where you don’t work to minimise this.
My point is when you have to fight for every single percent of return you have to take tax into consideration. The returns quoted by the companies are really quite dishonest because they don’t include this. Compounding at 3% is very different to compounding at 7% which is the case if you’ve already paid tax on your dividends. Over long time frames that impacts enormously on your returns.
Thanks for the info on the BSP’s. So you get the benefits of company tax rates and save 18% tax if you’re in the highest tax bracket. I’ll have to factor that in. So this would be much better than getting fully franked dividends?
I get annual reports from my managed funds showing how a 7% turn will double my investment in a decade but not telling me that after tax return is half that much. No way will it double in that time if what i get is a return of 3.5% after tax. The rates quoted for ASX returns again don’t show tax if you do a search on the internet. The only company that does that is Vanguard which shows the effects of different tax brackets. You are right a good investment is a good investment and tax is of secondary concern but my point is that we need to be more realistic what returns we actually get. A rising market makes everyone look good. I almost wonder if I need to get an accountant to go through my numbers just to double check I’m doing them right!
You’re right I can live on 67K. I pay rent and have 2 kids. So $500 a week in Sydney for a modest place 40km from the CBD means 26K gone. School fees modest school 7K each means 14K gone. Sure you can just go to the local school but that’s not where I want my kids educated. Car rego, maintenance, insurance , petrol totals 3.5K. Try using public transport with young kids or going somewhere for the weekend. Phone bill, power bill say 2K. So I’m left with 20K after that. Health insurance? Dental bills? Doable for sure and enough for a holiday too.
The only thing it won’t cover is if one partners gets permanently incapacitated like a friend of mine who become a quadriplegic last year. You have to get a carer to help look after them, modify the car and home etc. 67K doesn’t really go that far. You either need insurance or have spare million to cover this contingency. Its a fate worse than death.
Thanks for the great read! I’ve got a question for you. How many LICs or other shares/indices do you spread your portfolio over? I’m only just getting started and have a lump sum of around 100k to invest and am considering how many I should spread this over to start.
Great article about LICs. Only discovered your blog today. I hadn’t thought about LICs in quite this way from the point of higher dividend pay out compared with ETFs. I currently have a mixed bag of LICS and ETFs — so MLT and AFI and also VAS, VTS, VEU and VAP. I began all of this in early 2016 so as you can imagine the capital growth on the ETFs has been big. I allocated about 50% to AU shares and about 20% to VTS, 20% to VEU and 10% to REITs.
What I would be really interested to hear is your method of building your LIC holdings. Do you simply add cash into them with regular consistency in the same way superannuation payments go in (monthly for me) with no regard for the LIC stock price or do you “buy the dips” to keep your dividend yield as high as possible? Cheers
Dave – I think another salient point about whether to choose ETFs or LICs is the stock price itself. Consider that the price of LICs are usually much lower than say VAS. Currently VAS is trading at $74.28 and MLT is at $4.50. Someone starting out with about $5,000 would see some faster compounding with MLT. In fact, a $5,000 investment in VAS probably wouldn’t deliver enough to buy many shares at all. And $5,000 in something like VTS would not deliver enough to buy one share — which is currently trading at $174.61.
Dave – instead of us debating this, have a look at a real example on Sharesight (www.sharesight.com/au/) where you can compare different initial share purchases and see the effects over time for free. Create an initial $500 purchase of VAS on 1 April 2010 and switch DRP on and observe the results. You will see that in this scenario and with such a low initial purchase there was not a single additional share purchased in 8 years through DRP. Now do the same again in a new example but this time make the initial purchase $50,000. Have a look at the number of new shares that came through with DRP and then look at the difference in both capital growth and the increase from the dividends. Cheers
Dave – agree the overall difference isn’t much to worry about but I think people should be aware that they should at least aim to keep adding to the investment over time. It’s interesting to play around with different scenarios to see which one works out best — such as buy once and never look at it again for 10 years versus buy at regular intervals over those 10 years and buy even more if there is a significant market dip.
There’s something else I found out today that people should consider if they choose to buy ETFs such as VTS or VEU. Both are domiciled in the United States. This means that should the holder of these stocks build them up to $US60,000 or more and suddenly drop dead, the holdings will likely be subject to a US “death tax” of 35%. There is a US-AU treaty in place for this. Another good reason to focus more on LICs.
You just make sure your partner or whoever you are leaving your portfolio to is aware of this death tax that they need to log onto your accounts and sell them in the case of your death or otherwise just invest in Australian domiciled ETFs as Dave suggests. Easy fix either way.
Oh man… you’ve given me much more to think about.
Now I’m not sure about what to do. What if the index is Aus heavy, wouldn’t that give me the same sort of dividend returns?
The structural anomalies of the Australian market is something I have been thinking about recently with some concern. This has been alluded to in some comments above and in the post.
As mentioned somewhere in the thread, the ASX 200 is very top heavy. The top 20 companies cover 58% of market capitalization of the entire ASX200. Not only is this highly concentrated in a few companies it is also dominated by a few sectors. Firstly, the large banks. Sure, they have a great history of profits and dividends but will this keep going? With the Banking Royal Commission, tightening of lending rules and the coming property decline (whether a correction or a bust or whatever) their profitability will decline. Infact they have been a drag on the index recently. The other big sector is resources/mining – sure they have done great the past few years, but as dividend producing companies this is well covered by Thornhill.
The big index ETFs – VAS or A200 are clearly top heavy even though you think you are well diversified. The big LICs (AFI, MLT, ARG etc) are also top heavy. Perhaps Argo offers the best diversification of the bunch. Whitefield obviously skips the resources but still has a heavy bank weighting.
So if you think this is a problem what are the options? As I see it;
1. Go international – clearly the US market is very different structurally. Whatever your international ETF of choice is – VTS/VEU or VGS or emerging markets etc. Though as mentioned not as great for dividends. International LICs another option.
2. Go it alone on buying small/mid cap companies. Well beyond my level of understanding and too high risk.
3. Australian Small-mid cap LICs – I think not a bad idea but they come at a cost with high MERs. Can the golden run of WAM LICs continue. They come with a high premium to NTA and high management fees. Even a QVE or MIR come in at 0.6 – 0.9%
4. Other Australian share ETFs for diversification. I think this area is interesting. Vanguard VSO comes in with a still competitive MER 0.30% – 1 and 3 yr yields 14.68% and 12.06% but lower dividend yield 1.97% and lower franking 39%. The other interesting one was Betashare’s EX20 which is the ASX 200 with the top 20 companies removed. There are other rules with maximum weights on individual stocks and sectors. Low MER 0.25% with only 1yr performance available 12.74%. It has higher dividend yield 4.37% but lower franking 10.28%
There is probably a degree of fear mongering in this thought given the long track record of the ASX but maybe we are at a turning point. I don’t think the big LICs or the broad ETFs address this possibility.
I am still trying to work out all the mechanisms at play here.
I understand how the ETFs will mirror the index and rises and falls will largely take care of the redistribution with maybe some buying and selling. Capital inflow into the ETFs is huge facilitating this.
The closed end structure of the LICs is obviously different. Capital inflows rely on new share issues/DRP etc. I imagine these LICs are not buying up the banks or say Telstra but may be working to slowly change the portfolio characteristics. This will take time given their large funds under management and significant CGT payable for selling long held shares.
If all the major banks say fall by 20-30% then presumably the NTA of the large LICs will fall accordingly. I suppose the question here is does it really matter if you are buying to hold, as long as dividend payments don’t fall in a similar manner. A significant fall in dividends from the big banks will surely have a material impact on the LICs dividend payments. This is I suppose what is at stake.
So we all know the current bull market is going to end at some point, next year or the year after or whenever. I assume the audience here by way of their long term view will largely continue to invest and take advantage of lower prices. I am trying to avoid a discussion about timing the market or asset class (bonds, property, cash etc.) Let’s assume just equities and continued investment.
What do you think about investment vehicles in the coming bear market? Does your strategy change at all depending on market conditions or do you just carry on in the belief that the foundation is true regardless of the market.
LICs will obviously drop in price with the index. Discounts to NTAs may increase? The older style LICs presumably will behave similarly to the index given their composition. Dividends as discussed tend to drop less than price – so this is an advantage.
Index funds obviously follow the index. My understanding of the active/passive debate is that much of the longer term advantage of index funds is a smaller fall during the bear market as compared to active funds. So capital preservation may be an advantage of index funds in this scenario.
Then of course, every down market is followed by a bull market which tends to outdo the declines from the preceeding bear market.
So do you just stick the course?
As an example, during the heights of the GFC, the Australian Foundation Investment Company (ASX:AFI) continued to pay dividends as per usual. NOTHING changed except the price of the stock. In other words, if you were Joe the fisherman living on a remote island, who relied on dividends for a passive income but never watched the news, you would think nothing had ever happened. You’d just carry on with ignorant bliss. So yeah, stay the course.
Interesting discussion Dave & SJ. That can be an interesting blog post in itself Dave, how much cash to keep aside for someone who has reached “F.I.R.E.”?
Some may say a couple of year’s living expenses. That can shield you from a big fall in dividend flows if it were to occur. But is then there an extra amount to use for buying stocks if they fell by 30% for example? Peter Thornhill has remarked he took advantage of some hugely discounted rights issues in the GFC that performed well.
It is easy to say that if you were on a desert island during the GFC you would come back and see your old school LIC dividends unchanged. Yet it may still be very frustrating just sitting back and doing nothing for many.
I am guessing for Peter Thornhill it probably wasn’t even a worry for him if his dividend income was cut by 70%. So it’s easier for him to pick up bargain buys in the GFC. Maybe that is the answer, accumulate a lot first before you stop working! I might have to go back and get a real job again now!
If you are already fully invested and don’t have a salary coming in though it is harder to look at falls in the market as being exciting buying opportunities.
Thank you for your blog and to all those that have commented above. I have learnt so much by reading your post and the views of others.
Not only do you provide a balanced view but also clearly put forth your investing strategy without trying to convince others that it’s the “best” method. Over the last three years I have read many blogs where it is very clear the writer is trying to “sell” their trading strategy as the “best” alternative.
I have been picking stocks and developing a portfolio with 25 Australian companies mainly in health care, financial, consumer staples, industrial, consumer discretionary and telecom with companies such as COH, FLT, RHC, CSL and CBA making up 43% of my portfolio.
More recently I have added VEU (17%), WHF (5%) and MOGL (23%) and was looking to change the diversification of my portfolio, but didn’t want to continue stock picking. However, although I considered adding more LICs I wasn’t sure which LICs would fit best.
Also I wasn’t sure if I should add more international equities to my international portfolio which includes VTI, Facebook, Alibaba, Tencent and Travelsky (51% of this portfolio).
You have provided great insight to help make this decision and your arguments for building your portfolio with LICs that focuses on income growth resonated greatly with me.
Gaining FI is very important to me and I felt the need to reevaluate my investment strategy as my portfolio was moving away from my objective. I will now be looking at increasing my WHF weighting and adding Milton and AFIC to improve my income stream.
Your Q and A with Peter Thornhill’s also helped clarify things for me. (BTW I loved his book too and have re-read it twice now).
The universe works in mysterious ways and I found your blog at just the right time.
So once again thank you for your insight!
I’ll second Rose’s comment. I am relatively new to investing and I really appreciate being able to read this discussion and get a balanced exposure to others’ views. Great thread, thanks. I’ll be working my way through your other posts.
love your blog! I am still a newbie so I am sorry for a stupid question: Why should I buy several LIC’s rather than putting all my money in one?
Interesting blog strong money – do you have a view on international hedged vs unhedged ETF’s
Really appreciate the insight and have learnt enormously about your approach to Financial Independence. As you can appreciate there is a lot of information, not to mention data, “floating” in the ether, and you’ve done well to develop a strategy to achieve your objectives. I’ve read your LIC reviews and now feel a little more informed. You’ve covered the major LICS and wondering if you intend to include others – MIR and ECL?
Considering the initial post in June 9, 2017 over the last 2 years have there been any changes in the thought process at all with regards to LIC’s vs ETF’s, adding International, Emerging Markets etc ?
Thanks for your great content, i too am a big fan of Peter Thornhill.
Im looking for an ETF that tracks the ASX 200 industrials index AXNJ, do you know of one by any chance?
Thanks Dave, i did read that review and it was very helpful.
I thought there might be an ETF seeing as these days there’s and ETF for anything. But it seems LICs are the best option.
Hi Dave. I am really enjoying your blog. I have been following the Motivated Money strategy for a while and you have really expanded on it with real life examples and provided detailed research on the LICS / ETFS.
One thing I have noticed looking at the holdings of some of these instruments is that on some occasions there is cross ownership of stocks. e.g. LIC A owns SOL that owns 60% of the stocks that LIC A already is holding.
Should this be of concern that the pool is too narrow? What are your thoughts on this?
Hi SMA. Thanks for posting your thoughts. I’m trying to decide between ETFs and LICs and want to compare historical dividend performance. You mentioned that LICs tend to provide a better income stream. Could you point me to any data sources that compare dividend performance that takes into account fees etc Thanks again!
Great post Dave and thank you for sharing your knowledge with us. I am also enjoying your podcast Fire & Chill – well done.
Would your position/thoughts change if the legislation changes around the franking credits? If so, could you explain more?
Also, where can I find your current holdings, if they are published here of course. 🙂 Thank you.
Great post Dave,
You mentioned this:
“Some LICs also offer a Bonus Share Plan (BSP), sometimes called Dividend Substitution Share Plan (DSSP) – where you are able to forgo your dividend in exchange for more shares in the company, often at a discount and pay no brokerage or tax. This can be incredibly tax effective for those in a higher tax bracket. No income needs to be declared because no cash changed hands. ”
At what point would you switch to a DSSP over a DRP? I assume the DRP will have minimum tax at the start when we begin investing but can you switch back and forth. For example, If I reach $100,000 or more invested in LIC’s, would it be a good idea to use a DSSP instead.
I hope this makes sense.
I am also wondering the same thing, at what point should i switch from DRP to BSP? I have tried researching online and i got no where, mainly because a few bank websites (i think it was ANZ?) explained that BSP is only relevant for bundles of shares bought decades ago, before some cut off date.
So its still not clear to me.
If i buy shares of company XYZ tomorrow, should i select BSP by default if my current income from my job is in the very high tax bracket?
You are confusing bonus shares which, in the past, were issued by companies from its share premium account with the current Dividend Share Substitution Plans. These are available from WHF. MIR, AFI, DJW, AMH. WHF does confuse the matter by using the term Bonus Share Plan.
Have a browse through this page from the ATO.
Also explore the website of each of the above LICs. They have pretty extensive description along with the relevant Terms and Conditions plus a link to the ATO’s Class Ruling for each plan.
After much research we have decided on starting a minor trust through our commsec account for our son. As reading through here and other articles of yours (thank you so much for what is a substantial library now!) i feel the best way forward is to invest in LICs with the DSSP. That way we wont be affected by the tax and our son can pay the tax if he ever decides to sell. We are thinking that we will go 50/50 into AFIC and Whitefield given they offer the DSSP.
Was wondering if you had any thoughts around this?
Again thanks for your great work!
Fan of your articles, great content to keep me motivated.
Quick question – when you say ETFs return lumpy dividends what do you actually mean by that?
Also – 1 LIC what would you pick?