It's always difficult to know which business to invest your hard-earned money in, there are hundreds of options out there. Each business will have at least one compelling reason why it could be worth investing in.
Indexes are a decent option for know-nothing investors, however only overseas indexes are worth an investment in my opinion. Australian indexes tend to be focused on only the financial and resource sectors, with most of the index being focused on a few large companies, this defeats the purpose of an index.
Perhaps it's worth it to invest some of your capital into a listed investment company (LIC) that makes all the investing decisions for you. There are a lot of LICs out there as well, so to narrow it down for you, here are six that I have my eye on:
LICs that have long histories and focus on big blue chips
Three of the biggest LICs in Australia are three of the best in my opinion. They all have similar holdings, but there are differences between them.
Australian Foundation Investment Co.Ltd. (ASX: AFI) has been operating since 1928. It has pleasingly grown its share price by 101% since 2000 and has grown or maintained its dividend every year since 2000. At its current share price, it has a grossed-up yield of 5.94%.
Australian United Investment Company Ltd (ASX: AUI) has been operating since 1953. Its share price has grown by 95% since January 2003 and has grown or maintained its dividend every year since 1992. It currently has a grossed-up yield of 6.19%.
Whitefield Limited (ASX: WHF) has been operating since 1923. Its share price has grown by 69% since 2000 and it has paid a $0.17 annual dividend per share ever since 2009 (except for 2011). It currently trades with a grossed-up dividend yield of 5.4%.
The high-cost, high-reward LICs
It's hard to consistently outperform the market every year. somehow the investment team run by Geoff Wilson manages to do it. The two strong performing companies are WAM Capital Limited (ASX: WAM) and WAM Research Limited (ASX: WAX).
They both focus on smaller, faster growing companies which should outperform the market. They also both maintain strong levels of cash to protect against a market crash and for bargain opportunities.
However, this performance does cost the shareholders a reasonably high fee. The two companies charge a 1% management fee and a 20% outperformance fee if they outperform the benchmark.
WAM Research has a trailing grossed-up dividend yield of 7.99% and WAM Capital has a trailing grossed-up yield of 8.33%.
The overseas-focused LIC
Even a portfolio of LICs would benefit from some exposure to overseas earnings. MFF Capital Investments Ltd (ASX: MFF) is a LIC run by Magellan Financial Group Ltd (ASX: MFG). It can invest anywhere in the world that it sees fit to generate the best returns for investors.
This approach has clearly been working well because the share price has grown by 132.5% over the last five years. It has paid the same $0.02 annual dividend per share since 2013 which means the grossed-up yield is currently 1.54%.
Foolish takeaway
I think all six of these LICs are worthy of being added to your portfolio because of the diversification and security that they could provide for your capital.
