ETFs are the talk of the town but LICs are another way of gaining exposure to a basket of shares with a single trade. Tony Kynaston from the QAV Investing Podcast (an SFB recommended podcast to learn more from) joined us to explain LICs and how to use them as part of a diversified portfolio.
What's the difference between an LIC and an ETF?
An LIC starts with a fixed amount of money. The manager then invests that fixed amount of money in a basket of shares according to their investment thesis. That amount of money, or capital invested, doesn't change when someone buys or sells a share. In the case of an ETF, every time someone buys or sells units in that ETF, the manager buys or sells the shares that make up that ETF.
Gold ETFs are a good example. Some of them are backed by physical gold that sits in a vault in London. As more investors buy units, more gold is shovelled into that vault. When investors sell, the gold is removed from the vault.
This is why LICs are referred to as closed funds, while ETFs known as open funds.
Tony's investing ladder - 4 steps for starting out in the investing market:
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Shares for Beginners is for information and educational purposes only. It isn’t financial advice, and you shouldn’t buy or sell any investments based on what you’ve heard here. Any opinion or commentary is the view of the speaker only not Shares for Beginners. This podcast doesn’t replace professional advice regarding your personal financial needs, circumstances or current situation.
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