vanguard australia share index vs lics, page-6

I dont know much about Vanguard's Australian operations (other than the fact that their website contains some really first-rate educational material for private investors on such topics as investment planning, tax-planning, superannuation etc).

Assuming that they operate on the same priciples as the US operation (which was set-up by the legendary Jack Bogle) I rate them to be a good choice for average investors who are looking to make regular contributions to low-cost index fund.

As to whether a Vanguard type Index fund is a better choice than a well-run LIC, it boils down to your experience.

No matter which way you look at things, any time you delegate your investment decisions to a thrid party you will incur costs, albeit small in the case of Vanguard and even smaller in the case of Argo Investments and similar LICs.

By far the best way to invest (assuming sufficient funds for economy of scale) is to invest directly. You don't need someone else to tell you that BHP is worth buying. If you buy directly, you have choices regarding the timing of your purchases (eg BHP shares) you get your dividends earlier (improving your cash flow) and basically retain flexibility (whether to participate in off-market buybacks for example) to maximise your returns.

LIC's are one step removed from direct investment. Although you relinquish the ability to shape the composition of the portfolio, you still have the flexility of trading LIC shares on the market, which enables you (from-time-to-time) to buy assets at a discount to the market. This can offset the (admittedly low) MER LIC costs and lead to substantial outperformance long-term.

PS. Jack Bogle is credited with one of my favourite sayings :

* The best time to buy a good asset is when you have the money to do so*

If people did nothing more than follow that advice, they'd smash the professionals and wouldn't have to worry about all the bulltish we get bombarded with every day.


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