Performance Update for Colm Fagan's ARF

nest egg said:
Is Colm trying to help Joe & Josephine make an investment decision? I'm not so sure.
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I sincerely doubt anyone can be sure on that one!

Duke of Marmalade said:
If you are making a constant percentage withdrawal the sequence of returns does affect your cash flow, which of course matters, but it makes no difference to the final fund value.
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I know. I wasn't intending to do a 4% constant withdrawal. I was intending to do a 4% withdrawal of the value at the beginning of the relevant 5 or 10 year period (as in replicate something Joe & Josephine might actually need!) This would impact the figures but I suspect not to any material degree in this sample!


@GSheehy - thanks for the clarification!
 
AJAM said:
The only reason the Managed fund outperformed the Index tracker was the huge difference in performance in 2020 (14.72% Vs 3.87%), a difference so large that I would ask to double check that original information).
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My first thoughts on looking at the original table were "What index had that return for 2020?" filled by "Maybe it's a typo"
 
Louisval said:
If you are investing in an ARF and drawing down money, the sequence of returns does indeed matter. If I get a chance later, I'll model, say a 4% annual withdrawal. However, I wouldn't expect much of a difference in the key takeaway here.
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@Johnny apples

I promised to try to get back to you. Over the 10 years, the impact of a fixed withdrawal of 4% of the starting sum is to increase marginally the previously stated underperformance of Colm's fund. (The increase is marginal not the underperformance - the cumulative revised under-performance over the 10 years is over 25%).

Over the 5 years, the relative impact is more significant increasing the cumulative underperformance in those 5 years from just over 26% to just under 29% (or circa 0.45% of an additional under-performance on an annualised basis).

I hope that helps with your query.
 
Possibly, but that isn’t really the point (i.e. comparing other approaches, e.g. being 100% in cash with Colm’s approach). It’s really about the time cost, the increased risk, and the ‘proof of the pudding’ in terms of the real world outcome. Colm is wasting his time and setting a bad example for others because stock-picking in your own ARF in a concentrated manner is madness. He’d be better off lying on a beach with his ARF 100% invested in Zurich’s International Equity fund at 0.5%.
 
I don't really follow my own ('umble) ARF that closely but seeing that I have missed some juicy returns has unsettled me. So I did a check against Colm's ARF and what I would assume to be the more typical popular choices in practice. Cumulative over the 5 years to end 2024 I get:

Colm's ARF (DIY) 42.5%
Duke's ARF (Irish Life) 44.5%
Zurich Prisma 3 19.9%
Zurich Prisma 4 40.9%
Zurich Prisma 5 66.3%

My slight edge over Colm is within the margin of error and is due to Colm's relatively poor 2024. For avoidance of doubt I wouldn't have the stomach or the patience, skill or luck to do DIY. The thought of a major component of my investments falling by 20% in one day (when markets are otherwise calm) makes me shudder. So whatever the reaction of Joe and Josephine, Colm's frank and informative diary has convinced this 'umble duke not to go there.
 
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I don't doubt your conclusions but do you mind sketching the methodology you used. @Gordon Gekko need not bother to read any technical stuff.
 

Can you explain why you think this should be the lunch on the house please? I would have thought that High Dividend funds within pensions were generally tax inefficient especially for US shares.
 
jasdpace@gmail. said:
Can you explain why you think this should be the lunch on the house please? I would have thought that High Dividend funds within pensions were generally tax inefficient especially for US shares.
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I haven't thought it through to any great extent and was just wondering why I went for High Dividend. In general dividends are treated more unfavourably than capital gains for tax purposes. But in a ARF wrapper there is no difference so if there is a discount because of general taxation it is a "free" discount in the ARF. For example, if I were to DIY my ARF I would fill it with high yield stocks like Phoenix with double digit yields. I certainly did not develop this hunch to the detail of how US shares would be impacted. Or maybe I was just persuaded by the term "High".
 
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I thought that I read/heard somewhere that the concept that income and growth from pension funds is tax free needs to be qualified somewhat.

Specifically, Dividend Withholding Tax (DWT) applies in certain countries. In some of these countries, it is possible for the pension fund to reclaim the withheld tax but in other countries (like the US), there's an amount of the retained tax which cannot be reclaimed. That's why I was wondering about tax-saving element of your strategy. (Others may be more qualified than I to comment on the merits of high dividend strategy more generally). If you hadn't been so nasty to Gordon there, he'd probably take the time to explain the implications of DWT within pensions in more detail!
 
Colm Fagan said:
Another reason for publishing is to expose the price gouging in this market. My ARF provider does an excellent job. Nevertheless, I think they grossly overcharge for what is essentially basic bookkeeping and payroll.
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This is oversimplisitic and ignores the regulatory landscape. Qualifying Fund Managers aren’t two men and a dog doing ‘basic bookkeeping and payroll’.

The two biggest risks you’re ignoring are:

1) The risk of the lowest cost provider collapsing or perpetrating some sort of fraud against you; people should view the regulatory ‘home’ for their pension or ARF as very serious stuff; cost shouldn’t be the main driver.
2) Your investment approach is, best case, costing you money and, worst case, will blow-up your ARF. My sense is that you’ve been lucky to have ARF’d right when the world started to recover after the GFC.

For the avoidance of doubt, I enjoy your contributions and you’re clearly an extremely intelligent person. I just disagree, fundamentally, with your views on certain matters.
 
So I was wondering were you trolling me. It turns out you were. I thought you were better than that.
I haven't a clue about DWT. GG is pleased.
 
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I don't understand your problem, Duke. No matter. Maybe go for a walk around the block?! Your choice of vocab seems a bit offensive also.

I just rang my mate in the pensions world who explained all things DWT in the context of Irish pension funds to me! He was surprised that you didn't take this into account when modelling the AE scheme or that you don't remember so doing? Seems like a fair observation to me.
 
The earlier thread on my ARF investment strategy was closed last evening, before I had a chance to refute false and derogatory claims (almost all deliberate, I'm sure) about my competence to look after my ARF investments. I'm thinking particularly about @Gordon Gekko and @Louisval. Both almost certainly knew that nearly all of what they were wrote about my approach was completely untrue. I can't allow those false claims to stay on the record.

First of all, so as not to lose sight of the woods for the trees, @AJAM wrote
AJAM said:
A few pieces of Context, Colm's performance is far superior to the vast, vast majority of ARF investors who would be mostly invested in "Lifestyle" or balanced funds which would include a high proportion of Cash or Bonds.
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@AJAM is right, of course. All the evidence shows that someone my age (now 75) would be strongly advised by @Louisval, @Gordon Gekko and their like to invest a significant proportion of my ARF in bonds and cash, given particularly that the ARF is now my sole source of regular income other than the contributory OAP: I don't have any other pension entitlement.
I recounted in my posts what actually happened over the last 14 years. @Gordon Gekko and @Louisval gave theoretical reconstructions of what might have transpired if ARF holders had invested in certain funds, which presumably were chosen with the benefit of hindsight because they were seen - thirteen years later - to have been top performers. There is no evidence whatsoever that any real person ever followed the theoretical course of action outlined.
Secondly, the performance of my ARF is net of all charges (even the once-off fee in 2024 to my pension adviser for changing ARF providers). On the other hand, the unit-linked funds mentioned by my detractors are all execution only and don't allow for the extra advisory and ARF provider costs.
Thirdly, people tend to focus the comparison on the position at end 2024 when, as I readily admitted, I had just experienced a major fall in the value of one investment. Despite that, the results were still excellent.
Here is the same table, with an additional column added to show which fund was ahead at various year-ends:
At 10 of the 13 year-ends, my ARF (net of all charges) was ahead of the (completely theoretical) index tracker and the (equally theoretical) managed fund (before ARF provider and adviser charges). Thus, in every one of those years, I would have had to withdraw a smaller percentage of my fund in order to meet the regular withdrawal (which broadly increased in line with inflation), for which I was given no credit.
So much for @Louisval referring to
Louisval said:
the previously stated underperformance of Colm's fund. (The increase is marginal not the underperformance - the cumulative revised under-performance over the 10 years is over 25%).
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What "previously stated underperformance" was @Louisval referring to? I would very much appreciate if he/she could do the honourable thing and withdraw that and similar false statements, but I fear I'll be left waiting. The same applies to @Gordon Gekko who has supported every claim of my underperformance as well as adding their own completely false claims. For instance, @Gordon Gekko's final comment in the last thread was priceless:
"Your investment approach is, best case, costing you money and, worst case, will blow-up your ARF."
For what it's worth, my ARF is far less likely to blow up than one effected through an institution, because there's a direct link to the underlying investments with no intervening institution that could "blow up" to use @Gordon Gekko 's words.
@Gordon Gekko also claimed that I was spending a lot of my time on my ARF. I don't know how many times I've told readers that I hardly ever look at it. That also shows in the activity in the fund. In the first 50 weeks of 2024, there were just two small sales, amounting to less than 2% of the fund. There was no activity whatsoever in 2023. Dividend receipts were enough to pay the 6% income in its entirety. If my money were invested instead in unit-linked funds, I'd have had to sell some units every month to fund the withdrawals - and presumably I would have to seek advice from a pension consultant (at a cost) on which funds to sell. I've had to spend far more time responding to stupid comments on AAM than I ever spent studying the investment performance for my ARF.
Finally, an apology to the contributors who asked constructive questions - and there were many of them. I'm sorry that I haven't been able to answer them, because of having to respond to my detractors.
I enjoy writing these updates and some of the comments by others are excellent and thought-provoking; however, it's just not worth it when I have to endure ignorant sniping by anonymous critics. I may just stop providing updates.
 
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