Performance Update for Colm Fagan's ARF

[Johnny apples]

As I say, if anybody (ideally the originators of the original annualised returns data) wants to provide cumulative return figures (for each year?) I'm happy to add them to the table or a second table.

The reason I'm interested in the figures are as follows. I've listened to a few different commentators explaining the effect volatility has on compounding . The reasoning is that if two different investors both had returns averaging 10% per year for 10 years but investor A had wilder fluctuations as in up 30% and down 30 versus investor B with lower volatility as in up 15% and down 15% , then the effect of compounding would be greater for the lower volatility fund. Correct me if I'm misinformed

 

[AJAM]

Cumulative is what matters. € 10,000 invested in 2012 , what it worth today ? based on all three investments.

Cumulative Returns (Based on the Data from Clubmans Table), ignoring distributions (and ignoring 2011)

Year	Managed fund	Index tracker	Colm's ARF
2012​	1.12	1.14	1.24
2013​	1.36	1.35	1.52
2014​	1.61	1.62	1.77
2015​	1.79	1.75	2.00
2016​	1.97	2.00	1.89
2017​	2.16	2.11	2.41
2018​	2.03	2.02	2.04
2019​	2.63	2.64	2.96
2020​	3.02	2.74	3.02
2021​	3.85	3.66	3.50
2022​	3.09	3.18	3.22
2023​	3.77	3.76	3.82
2024​	4.84	4.74	4.22

	Managed fund	Index tracker	Colm's ARF
Avg Return	13.8%​	13.5%​	12.8%​
Std Deviation	0.14​	0.13​	0.16​

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.
However it is possible to get an even higher rate of return with less risk by choosing the Globally diversified Index tracker.
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).

Colm's overall strategy (invest for the long term in almost exclusively equities) is the right strategy.* Cash, Bonds and ALT's will drag on performance. It's knit picking but tactically, by choosing the Globally diversified Index tracker, it is possible to get an even higher rate of return with less risk

*with the caveat that you have enough to weather down years.

 

[Duke of Marmalade]

The reason I'm interested in the figures are as follows. I've listened to a few different commentators explaining the effect volatility has on compounding . The reasoning is that if two different investors both had returns averaging 10% per year for 10 years but investor A had wilder fluctuations as in up 30% and down 30 versus investor B with lower volatility as in up 15% and down 15% , then the effect of compounding would be greater for the lower volatility fund. Correct me if I'm misinformed

You may be referring to "pound cost averaging" which is a mathematical feature of regular investment.
But is fund A is up 50% having been all over the place, it is no different from fund B which is up 50% nice and steady, as far as an ARF holder as concerned.

 

[Louisval]

Hi @Johnny apples,

If you were investing a lump sum, the sequence of returns doesn't matter an iota.

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.

I forgot to mention earlier that the returns from the Managed International Fund are better again than the index fund but I didn't include it as there are certainly managed funds that underperformed the tracker fund also.

 

[Louisval]

However it is possible to get an even higher rate of return with less risk by choosing the Globally diversified Index tracker.

Isn't that Gordon's key point?
And the difference is even bigger over different timescales (say, over the more normal period chosen for comparative purposes of 5 or 10 years)

 

[AJAM]

Isn't that Gordon's key point?
And the difference is even bigger over different timescales (say, over the more normal period chosen for comparative purposes of 5 or 10 years)

Well Colm was actually beating both the other funds right up until 2024 (albiet with more risk).
My point is that Colm overall approach is correct, but for the average investor you can optimize it to be even better.
Paraphrasing, but I think Gordons point is that Colm is a "Fool" for even trying to pick himself. But the reality is that Colm is far better off than the vast majority of ARF investors.

Colm is in the right forest and Gordon is saying he's stupidly picked the wrong trees. But most everyone else is not even in the forest.

 

[nest egg]

...I struggle to see how Colm's posts help Joe & Josephine Arfer in any practical way whatsoever! Can some of the posters who enjoy Colm's post explain how they believe Joe & Josephine benefit from these posts? I genuinely can't see it myself.

Is Colm trying to help Joe & Josephine make an investment decision? I'm not so sure. On a personal level, as someone who will eventually drawdown from an ARF, it's interesting to see how he's getting on, through the ups and the downs. Would I invest the way he does? No I wouldn't. I'm all-in on a global equity fund, and have neither the inclination nor the time to even try to do anything different. I formed that opinion in a large part thanks to reading the debates that go on on threads like this. Could someone like Joe or Josephine be spurred on to follow Colm? Maybe, but I tend to think there's enough information on AAM to allow people to make up their own minds, just as I have done.

@Colm Fagan I don't see myself following in your footsteps in terms of your approach, but for what it's worth I think AAM is all the richer for your updates, and I'd certainly like to continue to hear how things go for you.

 

[Johnny apples]

Cumulative Returns (Based on the Data from Clubmans Table), ignoring distributions (and ignoring 2011)

Year	Managed fund	Index tracker	Colm's ARF
2012​	1.12	1.14	1.24
2013​	1.36	1.35	1.52
2014​	1.61	1.62	1.77
2015​	1.79	1.75	2.00
2016​	1.97	2.00	1.89
2017​	2.16	2.11	2.41
2018​	2.03	2.02	2.04
2019​	2.63	2.64	2.96
2020​	3.02	2.74	3.02
2021​	3.85	3.66	3.50
2022​	3.09	3.18	3.22
2023​	3.77	3.76	3.82
2024​	4.84	4.74	4.22

	Managed fund	Index tracker	Colm's ARF
Avg Return	13.8%​	13.5%​	12.8%​
Std Deviation	0.14​	0.13​	0.16​

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.
However it is possible to get an even higher rate of return with less risk by choosing the Globally diversified Index tracker.
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).

Colm's overall strategy (invest for the long term in almost exclusively equities) is the right strategy.* Cash, Bonds and ALT's will drag on performance. It's knit picking but tactically, by choosing the Globally diversified Index tracker, it is possible to get an even higher rate of return with less risk

*with the caveat that you have enough to weather down years.

Would it be fair to say that despite what the annual figures look like, that in fact Colm's returns are pretty similar

 

[AJAM]

Would it be fair to say that despite what the annual figures look like, that in fact Colm's returns are pretty similar

Yes, which is what you should expect.
All three options in the table are 100% Equity options, so they should have similar outcomes.
The biggest determinant on returns, will be what you invest in (Equities vs bonds vs cash).
Despite this, Humans spend the vast majority of their time arguing over the minutia of which equities to pick.

 

[GSheehy]

All figures net of all costs

No matter how many times you say it there are still those who can't/won't believe it. My comparison figures are on an execution only identical basis where an execution only fee is negotiated with the provider (by me) because the ARF is very substantial. Net means Net.

I know @GSheehy charges 0.25% p.a. for his execution only service.

The website states that "The regulated entity is paid 0.15% to 0.25% by Zurich Life from the quoted annual management charges." It also states that "Lower AMCs available for substantial (circa €200k+) single contribution transfers." which translates to less than 0.75%.

 

[Duke of Marmalade]

Hi @Johnny apples,
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.

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.

 

[GSheehy]

a difference so large that I would ask to double check that original information).

Yes, it's accurate. If you were in the other concentrated (50 global stocks) on same platform, the figure was 18.31%.

If the difference was other way round on the Managed V Index tracker no one would question it

 

[Louisval]

Is Colm trying to help Joe & Josephine make an investment decision? I'm not so sure.

I sincerely doubt anyone can be sure on that one!

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.

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!

 

[Fortune]

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).

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]

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.

@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.

 

[Gordon Gekko]

Well Colm was actually beating both the other funds right up until 2024 (albiet with more risk).
My point is that Colm overall approach is correct, but for the average investor you can optimize it to be even better.
Paraphrasing, but I think Gordons point is that Colm is a "Fool" for even trying to pick himself. But the reality is that Colm is far better off than the vast majority of ARF investors.

Colm is in the right forest and Gordon is saying he's stupidly picked the wrong trees. But most everyone else is not even in the forest.

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%.

 

[Duke of Marmalade]

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.

 

[jasdpace@gmail.]

Can't quite remember why I chose a High Dividend fund. I suppose it is down to my three rules for choosing investments: Tax, Tax and you guessed it. High Dividend shares should stand at a small discount because in general they are subject to higher taxation and so that should be a free lunch in an ARF. Seems to have cost me about 10% in 2024

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.

 

[Duke of Marmalade]

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.

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".

 

[jasdpace@gmail.]

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!