Performance Update for Colm Fagan's ARF

ClubMan said:
Surely a defence company faces significant AI risks (and opportunities)?
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As I wrote (I think), it has a presence in the defence sector, but it wouldn't be classified as a defence company. I'm no expert on such matters, but I think it's fairly immune from AI threats (and possibly from AI opportunities as well).
 
We have a winner!!! Someone on LinkedIn came up with the right answer: Goodwin plc.
The share mourned my decision to buy it by falling 5% today - yesterday: actually: I see that it's just after midnight!!!
 
For shareholders in Novo Nordisk, the last few years have been like riding a rollercoaster. I think it may finally be coming to a stop.

I bought Novo Nordisk in 2020 at an average Kr.205 a share. (Actually, I paid twice that per share, but there was a two-for-one share split in 2023). I thought I was buying a solid but boring pharmaceutical company, a leader in the insulin business, one that would deliver good, but not spectacular, returns in the long-term.

At the start, it accounted for around 6.5% of my pension fund.

I expected an uneventful journey. Little did I know that Novo Nordisk would soon become a darling of the weight loss industry.

The price started to rise, and rise, and rise. It was up 80% by end 2021 and almost doubled again by end 2023. It then rose by more than Kr.300 in the next six months, far more than I’d paid for the shares in the first place, to over Kr.1,000 a share by 30 June 2024. My investment was now worth almost five times what it had cost me less than four years previously. Novo Nordisk accounted for over a quarter of my pension fund.

In July 2024, when the price was at its zenith, I wrote (#38, page 2 on this thread) that Novo Nordisk had too high a weighting in my portfolio, that I might sell some shares, but at the time I was in thrall to the virtues of my much-loved “buy-and-hold” strategy. I did nothing.

What a mistake! I’ve learned my lesson, a very expensive one.

The price started to fall. Down almost 40% by end 2024, down nearly another 50%, to Kr.325, by end 2025. Then up again, to over Kr.400 by end January 2026, only to fall 25% between then and Friday last, 20 February, before falling another 16% yesterday (Monday 23 February).

After all the crazy fluctuations, the price is now 19% higher than what I paid in 2020 (allowing for the share split). I’ve also received a reasonable amount in dividends, so it’s not the end of the world.

Looking purely at the financials then and now, one could almost be fooled into thinking that Novo Nordisk never strayed from the straight and narrow path of being a boring pharmaceutical company, that all the excitement of the last few years was imagined.

Have we seen the end of the pyrotechnics? I hope so but I wouldn’t bet on it.
 
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Colm Fagan said:
For shareholders in Novo Nordisk, the last few years have been like riding a rollercoaster. I think it may finally be coming to a stop.
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Colm Fagan said:
After all the crazy fluctuations, the price is now 19% higher than what I paid in 2020 (allowing for the share split). I’ve also received a reasonable amount in dividends, so it’s not the end of the world.
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Roller coasters rarely stop at the top... ;)
 
I wonder how the counterfactual re-balanced (e.g. say annually if shares have changed relative weighing by a given margin) Colm's ARF would have gotten on.
 
ClubMan said:
Roller coasters rarely stop at the top... ;)
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I agree. I concluded that the price now is close to where I think it would be if it had never embarked on the crazy rollercoaster ride. I could be wrong, of course!!
 
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SPC100 said:
I wonder how the counterfactual re-balanced (e.g. say annually if shares have changed relative weighing by a given margin) Colm's ARF would have gotten on.
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Obviously, I would be a heck of a lot better off than I am!
I hope that I’ve learned to sell some or all of a holding if earnings and/or P/E multiple get into nosebleed territory, and to be especially wary if the investment represents a significant proportion of my total fund.
I’ve implemented that ‘new’ rule a few times more recently, e.g., with Apple and Nvidia.
 
Colm Fagan said:
In July 2024, when the price was at its zenith, I wrote (#38, page 2 on this thread) that Novo Nordisk had too high a weighting in my portfolio, that I might sell some shares, but at the time I was in thrall to the virtues of my much-loved “buy-and-hold” strategy. I did nothing.

What a mistake! I’ve learned my lesson, a very expensive one.
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Hi Colin and other posters..this is something I struggle with myself…when all in on “a buy and hold strategy” and with not needing to cash in a share but you have a star performer of 3x, CGT of 33% you continue to hold and it drops like a stone…timing the market etc..if CGT was 20% everyone would win
 
Hi @Bluefin
Firstly, it’s a pension fund so CGT is not an issue - nor is income tax.
Secondly, I tend to ignore the tax consequences unless it’s a no-brainer. TBH, I tend to accept tax as an inevitability, like the weather. Stupid, I know!!
 
Normally I would agree but where the gain is substantial say gain 600k, handing over 200k to revenue is not simply “tax tail wagging the dog” tbh
 
Bluefin said:
Normally I would agree but where the gain is substantial say gain 600k, handing over 200k to revenue is not simply “tax tail wagging the dog” tb
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Hind sight is 20/20.. Also, tax must be paid. Tell me the circumstances where you can gain 600k and take it all home
 
An FT columnist, Stuart Kirk, recently told of the investment advice he got from ChatGPT.
The advice was sophisticated: 45% in stocks, 10% in private markets, 20% in government bonds, etc., with detailed explanations for each recommendation. It all seemed very scientific.
There are two big problems with the entire exercise, though.
Firstly, he started from the wrong place.
Secondly, he asked the wrong question. Therefore, he got the wrong answer.
Firstly, he was all in cash at the start, having liquidated his entire portfolio last October. That may have turned out well tactically (if he was still in cash when the US and Israel attacked Iran) but strategically it was all wrong: he should have been in stocks and bonds.
Secondly, far more importantly, he asked ChatGPT the wrong question. After telling it that he was aged 53, he said he had a target of £1 million by age 60 (from £640,000 now).
Why that target and why that age? The likely reason is that he plans to retire at 60 and wants a fund big enough to deliver a good income in retirement. If that is the case, he made the common mistake, made even by professionals at times, of seeing pre- and post-retirement as different worlds, that you must cash your chips (at a predictable value) in the pre-retirement world before starting with a clean slate on the post-retirement journey.
That’s not how it should be.
The transition from pre- to post-retirement should be seamless; it should simply be that you cease making regular payments into a pension account and start withdrawing regularly from it instead. (The tax-free lump sum at retirement can be viewed as an in specie transfer from a tax-free account to a taxable one, with no sale of assets, and so an investment irrelevancy).
That’s how I have always viewed my pension account. When I was aged 53 – many moons ago - I asked my inner ChatGPT a similar question but I framed it very differently.
“Dear ChatGPT”, I said, “I aim to retire around age 60 (at 61, in fact). I then plan to withdraw between 6% and 10% every year until the end of my days, 6% from the tax-exempt account, the balance from a taxable account. What do you recommend?”
My inner ChatGPT advised me to invest entirely in equities and to view “retirement date” just as a point on a continuum, of no significance from an investment perspective.
I followed that advice. I don’t have a record of investment returns pre-retirement but I do have detailed records post-retirement (for the tax-free account). For every €1,000 in the account at retirement, I was able to take 6% a year, rising by just under 5% pa on average (an important qualifier) for the last 15 years. The account is still more than intact in real terms, so I hope to continue on the same path for as long as I live.
I’m not into AI, but I would like to know what ChatGPT (or any similar app) would answer if Stuart Kirk’s question were framed in the manner I asked my NI investment adviser.
Any volunteers?
 
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In fairness to co-pilot it looks for more info, after giving a reasonable view, which seems fair
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Your Situation


• Current age: 53


• Target retirement age: 61


• Withdrawal plan: 6–10% per year


• First 6% from a tax‑exempt account (e.g., pension lump sum, PRSA AVCs, Roth‑style, etc.)


• Remaining 0–4% from a taxable account





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High‑Level Summary


A 6–10% annual withdrawal rate is aggressive—it can work, but only under certain conditions:


It is likely to work if:


• Your portfolio is large relative to your spending needs


• You keep a growth‑tilted allocation during retirement (equities 50–70%)


• You have some fallback flexibility (lower spending in bad years, part‑time income, state pension)


It is risky if:


• You rely heavily on investment returns in the first 5–10 years of retirement


• Your taxable withdrawals trigger large tax burdens


• Market returns are poor during your early retirement years (sequence‑of‑returns risk)





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Key Considerations for Your 6–10% Plan


1. The “Safe” Withdrawal Rate Is Usually 3.5–4%


Most long‑term studies (e.g., Bengen, Trinity Study) find that:


• 4% is considered “safe” over a 30‑year retirement


• 6–10% is high, and increases the chance of running out of money unless you have:


• Strong guaranteed income streams OR


• A shorter retirement horizon OR


• A very flexible budget


Since you’re planning for retirement around 61, you might realistically need the money for 30–35+ years.





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2. Tax efficiency: taking 6% from the tax‑exempt account first


This can be a good tactic if:


• Your tax‑exempt account grows tax‑free, so drawing from it prevents it from becoming too large and triggering limits


• Or you want to reduce taxable income in the early years (to avoid higher tax brackets)


But:


• In some systems, letting the tax‑exempt account grow and drawing taxable money first can be more efficient


• The right approach depends on marginal tax rates over time


If you want, I can model both strategies with numbers.





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3. Sequence‑of‑Returns Risk


This is the single biggest threat to withdrawing 6–10%.


If you get two bad market years early in retirement, even a strong long‑term average return won’t fix the damage.


To mitigate this, people often hold:


• 2–5 years of spending in cash or very safe assets


• OR use a “guardrails” strategy (variable withdrawals depending on market conditions)





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4. Your Range (6–10%) Might Work If You Make It Variable


Instead of a hard rule like “I’ll always take 8%,” you could use a rule such as:


• Take 6% in normal years


• Take 7–9% only when the portfolio grows


• Revert to 4–5% in down years


This dramatically extends portfolio longevity.





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5. Check if future guaranteed income covers part of your needs


If you expect:


• Irish State Pension at 66 or 67


• Defined benefit pension


• Rental income


Then your required portfolio withdrawal rate may drop a lot in your late 60s and 70s, which makes 6–10% in your early 60s more sustainable.


If you tell me your expected guaranteed income, I can run a more realistic scenario.





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A Simple Rule of Thumb


If your goal is financial safety:


Aim for 4–5% as a baseline


and


Allow 6–10% only when markets are strong and your portfolio is ahead of plan





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If You Want, I Can Build You a Full Projection


I can model:


• Portfolio value from age 53 → 61


• Growth assumptions (your choice)


• Different withdrawal strategies


• Tax‑optimised drawdown order


• Probability of success over a 30–40‑year retirement


Just tell me:


1. Your current portfolio size (tax‑exempt + taxable)


2. Your annual contributions to each


3. Your target retirement spending (annual)


4. Your expected State Pension and any DB pensions


5. Your investment mix (equity %, bonds %, cash %)


Want me to run that scenario?
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Here is a response with some figures entered
Inputs I used


• Age now / retire age: 53 → 61


• Balances now:


• Tax‑advantaged (“tax‑exempt”): €850,000


• Taxable/cash: €100,000


• Contributions until 61:


• Tax‑advantaged: €35,000 / yr


• Taxable: €0 / yr


• Retirement spending need: €80,000 / yr (today’s €), rising with inflation


• Guaranteed income: State Pension €15,500 / yr from age 66, indexed with inflation


• Asset mix: 100% equities


• Fees: 1% all‑in


• Tax: Effective 20% on taxable withdrawals; tax‑advantaged withdrawals assumed net (“tax‑exempt”)


• Withdrawal style: Guardrails (variable) and a comparator “fixed‑need with your 6→10% order of withdrawals”


Market assumptions (nominal):


• Equities: 6.5% median return, 15% volatility


• Inflation: 2.2%


• Fees: 1% (already applied net of returns)





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Methods (what I actually ran)


1. Accumulation (53→61): Simulated yearly returns to retirement with ongoing contributions.


2. Withdrawals (61→101): 3,000 Monte Carlo paths with annual returns and inflation.


• Draw order each year:


1. Up to 6% of total portfolio (measured each year) from tax‑advantaged,


2. Then from taxable up to 10% total combined,


3. If still short, take more from taxable (grossed up for 20% tax).


• Fixed-need strategy: Always meet €80,000 (real), less State Pension.


• Guardrails strategy (Guyton‑Klinger‑inspired, simplified):


• Start with min(6% of the portfolio, the €80k need) at 61 (real).


• If portfolio drops >20% below the inflation‑adjusted anchor → cut real spend by 10% (never below 80% of initial real spend).


• If it rises >20% above the anchor → increase real spend by 10%.





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Headline Results


At age 61 (before withdrawals)


• Median total portfolio @61: €1.67m


• 10th–90th percentile range: €1.07m – €2.65m


With 100% equities, the range is wide—good upside, but higher early‑retirement risk if markets stumble right after 61.


Probability you don’t run out of money by age 101


• Fixed‑need strategy: ~100% of simulations


• Guardrails strategy: ~100% of simulations


With €80k spending (real), the plan is highly sustainable under these assumptions—even at 100% equities—because your withdrawal rate at 61 is typically ~4–5% (before State Pension kicks in), not 6–10% every year. In many paths your 6% cap from the tax‑adv bucket already covers the need at 61.


Terminal portfolio (age 101, nominal)


• Fixed‑need (median): €0.80m


• p10: €0.21m | p90: €12.0m


• Guardrails (median): €0.83m


• p10: €0.20m | p90: €10.2m


Average income received (nominal, incl. State Pension)


• Fixed‑need (median path): €126k/yr


• Guardrails (median path): €110k/yr


• Guardrails sometimes temper spending in poor periods, hence slightly lower average nominal income but improved sequencing resilience.


Interpretation: On these inputs, your plan looks robust with €80,000 spending (real). The guardrails help manage bad early years. The biggest driver of risk is the 100% equity stance—great upside, but elevates the chance of being forced to cut spending after a poor first 5–10 years. The guardrails mitigate that.





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What’s working for you


• High starting balance vs. target spend → initial withdrawal rate is manageable.


• State Pension at 66 reduces portfolio draw in later years.


• Guardrails dampen sequence‑of‑returns risk.





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⚠️ Key sensitivities to watch


1. Spending level


• If the true target were €100k–€120k (real), the success rate would likely remain high, but the probability of deep cuts in a bad sequence rises. I can rerun with those figures.


2. Asset mix


• 100% equities increases volatility. Dropping to 70/30 or 60/40 usually lowers the risk of big early‑retirement cuts—often with little change in long‑run median outcomes when guardrails are used. I can show side‑by‑side comparisons.


3. Fees


• Moving from 1.0% → 0.3–0.5% materially boosts sustainability (every ~0.5% fee cut is “free return” each year).


4. Cash buffer


• Holding 2–3 years of spending in very safe assets (and refilling only after positive years) further reduces sequence risk. I can layer this into the model.


5. Tax


• We used a flat 20% effective tax on the taxable account. If your effective rate is higher in some years (e.g., due to other income), gross withdrawals must be larger—worth stress‑testing.





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Why the outcomes are so strong (with €80k spend)


• At 61, a ~€1.7m median portfolio makes €80k a ~4.7% withdrawal before State Pension, which drops further once the State Pension starts.


• Your “6% from tax‑adv” cap often fully covers your annual net spending need early on, so you rarely need to tap the taxable bucket heavily.
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Thanks @Setforlife
I haven't had a chance to read through the entire response, but poor old co-pilot seems to have made the same mistake as financial advisers who preach the mantra of "the safe withdrawal rate is 3.5 to 4%" and the perennial "sequence of return risk" tend to make: it assumes that my aim was to withdraw 6% to 10% of a fixed fund value (either its value initially or at retirement). The proposed withdrawal percentage is 6% to 10% of CURRENT value at any time. It doesn't take a genius at maths or an expert in AI to conclude that a constant percentage of the CURRENT VALUE can be taken forever.
If you make that clear to co-pilot, will it change its recommendation?
 
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The ai tools don’t generally do more than give you likely variance and some feedback based on received wisdom. So not recs asuch but here you go
I reran everything assuming a pure 6% variable withdrawal of your total portfolio value at the end of each retirement year (after that year’s returns are applied).


How I implemented your rule:


• Gross withdrawal = 6% of end‑of‑year total portfolio.


• Sourcing order: take the entire 6% from tax‑advantaged first; if that bucket can’t cover it, take the remainder from taxable.


• Tax handling: any amount sourced from taxable is reduced by 20% tax before it reaches you; tax‑advantaged amounts are tax‑free in this model.


• State Pension is added to your net income from age 66, indexed with inflation (2.2% assumed).


Same market assumptions as before: equities 6.5% median nominal return, 15% vol, 1.0% fees, 2.2% inflation; 100% equities.


Note: With a percentage withdrawal rule, the portfolio won’t hit literal zero in finite time. The trade‑off is income variability — withdrawals shrink in tough sequences and can drift down over time if expected returns < 6% net of fees.





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Results (Monte Carlo: 3,000 paths)


At age 61 (before withdrawals)


• Total portfolio @61 (median): €1.669m


(10th–90th percentile: €1.069m – €2.651m)


Withdrawals & Income


• First-year gross withdrawal @61 (6%): €104,386 (median)


• First-year net income @61 (after tax, incl. pension): €104,386 (median)


• At 61, the 6% is typically fully covered by tax‑advantaged, so no tax drag initially.


• Net income @66 (includes State Pension): €112,432 (median)


• Net income @75: €100,871 (median)


Across retirement (61→101):


• Median of path medians — annual net income: €95,468


• Median of path means — annual net income: €99,830


Because your expected net nominal return (~5.5% after 1% fee) is slightly below the 6% withdrawal, the typical path shows nominal withdrawals gradually drifting down over time (and can be choppy year‑to‑year with 100% equities).


Terminal Portfolio @101 (nominal)


• Median: €796,009


• 10th–90th percentile: €218,108 – €2,711,731


When does taxable get used?


• Share of simulations that ever touch taxable: 53.9%


• Median age when taxable is first used (if used): ~100


• Share of simulations where tax‑advantaged is fully exhausted by 101: 53.9%


• Median age of tax‑adv exhaustion (if exhausted): ~100


Translation: with the “tax‑adv first” sourcing, most of your retirement is funded by the tax‑adv bucket, and tax drag typically appears very late (around age ~100 in the median path among those that use taxable at all).





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What this means


• A 6% variable withdrawal is sustainable by construction (it flexes with the portfolio), but income will vary with markets and, given assumptions, tends to drift down over time in nominal terms.


• Your high equity exposure increases income volatility (bigger swings year to year).


• Drawing tax‑adv first keeps taxes low for decades; only late in life does taxable typically get tapped.





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⚙️ Sensitivities & Options to Smooth Income


1. Asset mix:


Shifting to 70/30 or 60/40 often reduces volatility of income (smaller drawdowns), even if the median terminal wealth is similar. I can run those side‑by‑side.


2. Fee drag:


Lowering all‑in fees from 1.0% → 0.3–0.5% meaningfully improves the income path (higher expected net returns).


3. Withdrawal cap & floor:


If you want smoother pay, apply a guardrail on the 6% rule (e.g., limit year‑over‑year changes to ±10% or add a real income floor).


4. Tax sourcing blend (later years):


Instead of 100% tax‑adv first, a mixed sourcing in very late years can keep the effective tax rate stable. I can model that pattern too.





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Key numbers at a glance


• Portfolio @61 (median): €1.669m


• 6% withdrawal @61 (gross): €104,386


• Net income @61 (after tax, incl. pension): €104,386


• Net income @66 (incl. pension): €112,432


• Net income @75: €100,871


• Terminal @101 (median): €796k


• Taxable ever used: 53.9% of paths, median first use ~age 100





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If you’d like, I can rerun immediately with any of these tweaks:


• 70/30 or 60/40 portfolio


• Fees at 0.5% and 0.3%


• Year‑over‑year income change caps (e.g., ±10%)


• Alternative sourcing (e.g., pro‑rata or “fill tax brackets”)


• Withdraw 6% net (instead of 6% gross), so taxable draws are grossed up for tax.
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HI @Setforlife
Thanks again.
Again, looking at it quickly, the following jumps out at me:
"Because your expected net nominal return (~5.5% after 1% fee) is slightly below the 6% withdrawal, the typical path shows nominal withdrawals gradually drifting down over time (and can be choppy year‑to‑year with 100% equities)."
Where did it get the 5.5% and 1% fee from? At the very least, it should try to justify it, rather than just pull it out of the hat, especially since it goes into lots of detail on other, less important, aspects.
Economists generally agree that the Equity Risk Premium is of the order of 4% to 6% a year. Assuming bond yields of (say) 3.5% a year on average, it's very reasonable to expect equity returns (before charges) of 7.5% to 9.5% a year on average.
I've succeeded in negotiating the charge down to 0.4% a year, but I accept that it may be difficult to get below 0.6% in most cases, still much less than 1% a year.
 
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