Tuesday, 10 May 2016

Adding to my share portfolio - AFI and ARG

I decided to buy some listed investment company (LIC) shares today. I bought 5,000 shares of Australian Foundation Investments at $7.26 $5.642 (total cost with brokerage: $28,185.73) and 4,000 shares of Argo Investments at $5.642 $7.26 (total cost $29,036.75). The share purchase was funded using my Comsec margin loan, currently costing 7.13% pa interest, and I transferred $20,000 from my St George portfolio loan account (costing 4.99% pa interest) which will reduce the amount funded using my margin loan to $37,222.48. Annual tax deductible interest cost for this investment will therefore be around $3,651.96 (or an average interest rate of 6.382% pa), The AFI shares paid a dividend of 23 cps in 2015, and the ARG shares paid a dividend of 29.5 cps in 2015, the the annual dividend from the investment will be around $2,330, leaving a net negative cashflow (and net reduction in taxable income) of $1,322 or so, plus some franking credits (a tax credit available to Australian investors for the company tax paid on dividends from Australian companies, based on the amount of company tax paid).

In the long term (ie. when I retire in 10-15 years time) the 'plan' is to sell off these shares for more than they cost, making a capital gain (which would be taxed at half my marginal tax rate at that time), hopefully more than the cumulative cost of the net cost of holding these investments.

AFI had a total return (dividends and share price appreciation) of 8.4% pa over the past 5 year period, and ARG had a total return of 9.0% pa over the past 5 years. The ten year average annual total return figures are a lot less impressive, but as that period include the impact of the GFC I expect the next 10-15 years average annual total return to be more like the past five year period than the past ten year period. Only time will tell.

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Anonymous said...

Your share price costs are mixed up

enoughwealth@yahoo.com said...

Thanks, I've now fixed it. I had noticed that I'd written the prices in the wrong order when I was updating my portfolio spreadsheet, but then neglected to edit the post before hitting 'publish'.