New PRSA - Should I base it on charges or past performance?

M

MoneyNovice

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Hi,
I have just become self employed in my early forties having been a PAYE worker for 20 years with an employer provided pension. I have a medium to high risk tolerance considering my age. I am looking at setting up a PRSA and have reviewed it with 2 different brokers.
  1. Broker 1 is recommending Aviva with a 50/50 split between the Canter Fitzgerald Multi Asset fund and Higher Yield Equity fund.
  2. Broker 2 is recommending Irish Life with a 50/50 split between the Consensus and Forum 5 funds.
The Aviva option has performed much better over the past 10 years but it has an annual management charge of 1.05% whereas the Irish Life option has a charge of 1%. Both have 100% allocation. I know past performance is not necessarily an indication of future performance but maybe the fund managers are simply doing a better job there. I'd be interested to hear people's opinions on whether I should base my decision on this or simply go with the one with the lower charge (i.e. Irish Life)?
 
Last edited:
ClubMan said:
Past performance is irrelevant/meaningless.

In my opinion ... Go with a low charges (c. 0.75% annual management charge, 100% allocation of contributions) PRSA and an all equity passively managed index tracker through an execution only broker such as...
KISS.
Click to expand...
By going for passive funds, you remove the worries about fund manager performance which would bring it down to a decision based on charges.

Having a look into tracking error would still be worthwhile, as well as looking at the index being tracked.
 
ClubMan said:
Past performance is irrelevant/meaningless.

In my opinion ... Go with a low charges (c. 0.75% annual management charge, 100% allocation of contributions) PRSA and an all equity passively managed index tracker through an execution only
Click to expand...
I wouldn't agree that past performance in irrelevant . Unless you have a crystal ball , then comparing similar makeup funds by past performance is a useful guide to actually making a decision . If an all equity fund from provider A consistently under performs similar fund from provider B , then why would you go with provider A ? .
 
ClubMan said:
Past performance is irrelevant/meaningless.

In my opinion ... Go with a low charges (c. 0.75% annual management charge, 100% allocation of contributions) PRSA and an all equity passively managed index tracker through an execution only broker such as...
Click to expand...
???

You say past performance is meaningless and in the same breath that the OP should go all in on a passive index fund through execution only.

I'd 100% agree with that advice but the rationale for favouring passive index funds over actively managed funds is based entirely on....past performance!

A rational investor will base their choice of which index to track largely on.....also past performance! The MSCI has poor performance relativel to S&P 500 for example. If the AMC is 0.5% higher but the long term average return is 2% higher you're throwing away an awful lot of money by going with the lower charges fund.

LONG term performance is key. I'd consider anything less than 20 years as irrelevant. I looked at the last 20 years for each of the last 15 years before making my final decision, as well as last 35 years. The OP should recall that a pension is basically 40 year investment- for many people that's longer than they'll live in the same home, so at least the same consideration should go into their pension strategy as into buying their home.

The other main factor will be risk tolerance. My pension fund is 100% Nasdaq 100 but if you prefer a more stability over potentially higher returns then S&P 500 is the better choice.

Investing long term in bonds is like burning cash in my opinion. Almost as bad as keeping your money in the bank.
 
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