Well, a balanced fund (which I imagine most real life investors hold in their ARFs) would rebalance periodically to maintain a consistent asset allocation.It is doubtful if a real life investor would follow the withdrawal pattern you suggest
But they cannot be disconnected to any extent - dividend payments simply come off of the share price (as determined by the market)....but to the extent that they are disconnected...
@Gordon Gekko
You are arguing against points I haven't made and are forgetting your original comparison which was a basket of equities compared to retail deposits. The latter would never make any sense for anyone with a decades-long investment horizon.
Otherwise you claimed:
You can look this up and find that real yields on 10-year UK bonds were about 0.2% 1945-1980.
It is (as you would expect) a miserable return compared to equities, but it is not a wipe out.
thanks for the informative discussion ,one of the concerns i have is with drawing down 4% from the ARF , paying tax/stamp , AMC , brokers trailing fee etc., if i dont invest my pension Longterm in Global equities (s&p500) to counter the above secondary drawdowns then the sum will prob run out anyway , so to me there are risks on both sides ,
Your wish is my command!Well, a balanced fund (which I imagine most real life investors hold in their ARFs) would rebalance periodically to maintain a consistent asset allocation.
If you rebalanced the portfolio following a drawdown in the equity portfolio, you would obviously increase the impact of the subsequent equity returns, while maintaining the original allocation.
There aren't reliable statistics but probably something pretty similar given currency union and economic integration with the UK.Aside: what was the return for an Irish investor! Irish retirees care less about the local gbp experience and more about the Irish/euro experience.
Hi Gordon. No is the quick answer. I recall once looking at this option briefly and concluding that it was equivalent to throwing money down the drain. It's too late for me to revisit my logic, but if no-one else responds, I'll try to get back to you in the morning.Would you consider just paying the tax in a ‘down year’ and not taking the full distribution?
But how do you rebalance back to a 50/50 allocation without selling bonds to buy equities at the end of Year 1? I don't follow.I re-did the sums, assuming the portfolio was rebalanced each year-end, aiming always for a 50:50 distribution between bonds and equities (but purely by splitting the total withdrawal between bonds and equities, not by selling bonds).
Yes we'll leave it there. You cannot or will not see the point. Maybe my pedagogical shortcomings.But they cannot be disconnected to any extent - dividend payments simply come off of the share price (as determined by the market).
We are obviously talking at cross purposes so I will leave it there.
Thanks Colm.Hi Gordon. No is the quick answer. I recall once looking at this option briefly and concluding that it was equivalent to throwing money down the drain. It's too late for me to revisit my logic, but if no-one else responds, I'll try to get back to you in the morning.
In any event, as I said in a previous post, I've never been 'embarrassed' into having to sell investments in order to withdraw the ARF income. I keep a small cash float, generally in the region 2% to 5%. That, plus dividend receipts, plus the occasional share sale (decided on for portfolio reasons, because the share has fallen out of favour) have always proved sufficient to generate the necessary funds. As I think I said earlier, I withdraw monthly. That was not always the case, especially when I earned a reasonable income from part-time work (which is no longer the case). I withdrew at odd times during the year, but always withdrew what was required for tax purposes.
Dividends are paid from income earned by the real assets of the company not by sale of those real assets. Totally analogous.Isnt the rent analogy somewhat incorrect because rent is not paid out of the value of the house - its an income derived from the house but its payment doesnt reduce the value of the house.
Do you realise how petty you're being? I already wrote: "I re-did the sums, assuming the portfolio was rebalanced each year-end, aiming always for a 50:50 distribution between bonds and equities (but purely by splitting the total withdrawal between bonds and equities, not by selling bonds)."But how do you rebalance back to a 50/50 allocation without selling bonds to buy equities at the end of Year 1? I don't follow.
There is a bit of sleight of hand here Colm. You are putting all the equity losses into the period before most of the drawdowns have been made!They have a choice of two investments:
(a) 100% in equities, which return -30% in the first year, then 6% a year from there on.
(b) 50% in equities, with the same returns as (a), the other 50% in bonds, which return a level 2% a year (i.e. an ERP of 4% after year 1).
Each year, the withdrawal of 45k is taken from equities or bonds in proportion to their value at the time.
After 30 years, the residual fund value under (a) is 235k; under (b), the residual fund value is 150k.
Yes! That was what was asked of me! I gave the history of how my ARF had performed, to be told that I was lucky not to have experienced a severe fall at the start. I duly obliged by showing the result if I had experienced that severe fall at the outset.There is a bit of sleight of hand here Colm. You are putting all the equity losses into the period before most of the drawdowns have been made!
So you're asking me to assume a 12% loss relative to expectations each year for the first five years, a cumulative 60% loss relative to expectations (but bearing in mind my earlier comments about arithmetic calculations in such circumstances) ?Spread the 30% loss over the first five years, then assume a more aggressive recovery to get the same average return over the period. So about a 7% negative return for 5 years, then a positive 7% return for the next 25 years
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