Performance Update for Colm Fagan's ARF

A few months ago, I made the depressing discovery that my pension fund would be worth more now if I had left it untouched since year-end. That is still the case.

But I couldn’t have left it untouched. At end 2025, the fund was far too concentrated in a single share. I couldn’t admit in polite society that I, a supposed risk expert, an actuary and former chair of numerous risk committees of insurance and reinsurance companies, had 27.4% of my entire pension in a single share. That share was Standard Life plc. I had to reduce my exposure.

So, even though I was confident that Standard Life plc would continue to be a good investment, I resolved to sell part of my holding.

I was right about Standard Life continuing to be a good investment. By Friday last, 4 September, the price (in Euro terms) was up 28.5% since year end, to which can be added another 3.8% in dividends (and that’s just one half-year’s dividend, the second half is yet to come). Not bad for a bond proxy! If I hadn’t reduced my exposure, Standard Life’s share of the fund would now be 31.3%.

Any replacement share would have had to deliver a similar return if the fund’s performance weren’t to suffer. Needless to say, I wasn’t able to pull off that trick – but I made a good try!

Disposals during the year meant that, by Friday last, Standard Life’s share of the fund had fallen 9.4%, to 18.0%. That’s a percentage I’m comfortable with, especially given my knowledge of the industry and of the company. (Once upon a time, I chaired a Standard Life subsidiary).

NVIDIA is now my second largest holding. Its share of the fund has increased by 9.7%, from 7.3% at end 2025 to 17.0% on Friday last. For reasons explained in recent posts, I’m also comfortable with my exposure to NVIDIA. Its share price (also in Euro terms) increased by 24.9% year to date, not far off the 28.5% increase in the Standard Life price (but the dividend is tiny in comparison).

Everything would now be hunky dory except for a third big investment decision. During 2026, I invested heavily in a UK engineering company called Goodwin, which I hadn't even heard of at last year end. It now accounts for 8.4% of my fund.

The price more than halved shortly after I bought. I availed of the cut-price offer to add to my holding. The price is now 60% up on the lower price but, as every schoolboy knows, a 100% rise is needed to compensate for a 50% fall, so I’m still out of pocket – but not by much. Anyway, Goodwin has delivered plenty of excitement to compensate for the poor return!
 
Last edited:
I see from recent posts on another investment website that people are still extolling the virtues of a 60:40 portfolio (60% equities, 40% bonds), referring to the hedging advantages of bonds, their defensive qualities in a downturn, etc.

For me, it's open and shut: for the pension investor, it must be 100% in equities.

My pension fund has been in drawdown since end 2010. Apart from a tiny cash balance (typically around 0.5% of fund value to cover scheduled pension withdrawals and costs in the next month or so), it's 100% invested in a highly concentrated equity portfolio (currently, shares in just 13 companies). In the 15 years to end 2025, its performance (average return 10.8% a year net of all costs) closely matched that of a passive international equity fund, assuming the same platform fees as I've incurred (average 10.7% a year). In contrast, a fund invested 60% in equities, 40% in bonds would have returned just 6.7% a year on average. The comparative returns for the three portfolios, one real, two notional, are shown below.

It can be argued (with help from a magnifying glass) that the trajectory for the 60:40 portfolio is smoother than for the 100% equity portfolio, but is it worth sacrificing an average of 4% a year, every year for fifteen years, for a slightly smoother journey?


View image
 
With government bond rates increasing and expected to increase further in the coming months I've wondered would the 60:40 strategy come back to the fore.

Whilst there is no doubt over the last 15 years being fully invested has been extraordinarily profitable. I wonder will the next 15 be the same. Might it be time to build in some insurance / protection via fixed income securities (trading at 6 %+ yield) against a some might say over valued market, is 80:20 prudent ?
 
The average EU interest rate was 2.04% during the 15 years from 2010–2025 but 4.89% during the 15 years from 1995–2010. Obviously, bond yields differ, but broadly follow the same trajectory. With bond yields rising in recent times, bond prices have been falling dramatically.

We are amidst a bond crisis so looking at recent historic returns and drawing any conclusion about bonds being entitled no more than a 0% allocation to ones portfolio is probably about as useful as looking at recent historic returns immediately after the great financial crisis and concluding that a pension should have a 0% allocation to equities. The truth likely lays somewhere in the middle.

Taking a UK investor for example, they can access a 30 year gilt with a yield of 5.75%. Is there a point where someone in the accumulation phase of pension investments should look at an allocation? The rate topped out at 5.994% earlier this month.

Likewise, is there a point where someone in the drawdown phase should consider an allocation? Many have financial advisors in the UK advising them to drawdown no more than 4% of their pot annually. Surely, it must be tempting for such a person to, instead, invest in gilts at a 5.75% yield.

I agree that, over the very long term, 100% equities will almost certainly win out. However, there are points in history where allocating a proportion to bonds will turn out to be a very profitable move. This will likely involve an allocation to bonds when equities hit a peak and bonds are in crisis-mode. Some might argue that we are at that point now.

The numbers vary for an EU investor as typical 30 bond yields are closer to 4% than 6%. However, I'd still find it very difficult to advise a pensioner with low retirement savings to invest in100% in equities if they can manage fine with a 5% annual drawdown but would struggle on any less. I'd be putting some time into investigating a large investment in 30 year bonds and a smaller allocation to a 10 year bond ladder for this hypothetical person.

For myself, with 25 years to state pension age, I remain 100% invested in equities. However, I would be lying if I said I wouldn't consider a 20-30% bond allocation if equities were to continue to hit all time highs and bond yields to continue rising. In fact, I've already considered such a move but feel.we're not in the equity bubble some would lead you to believe we are in - yet.

When I do come to consider bonds, I'll also be looking at corporate bonds. For example, there is an Irish government bond and a MSFT corporate bond, both denominated in euros and maturing in 7 years (May 2033). The yields are 3.45% and 3.75% respectively. Obviously, the Irish corporate bond is safer but, in my opinion, MSFT has a ridiculously strong balance sheet and the chances of them going bankrupt in the next 7 years is pretty much 0%.
 
Last edited:
ronaldo said:
Obviously, the Irish corporate bond is safer but, in my opinion, MSFT has a ridiculously strong balance sheet and the chances of them going bankrupt in the next 7 years is pretty much 0%.
Click to expand...
It’s all the off-balance-sheet shenanigans that would worry me, not necessarily for MSFT in particular but in that AI sector generally. Someone’s gonna be left holding the baby, problem is I don’t know which. But if Nvidia are the Cisco of this episode, MSFT and the other hyper scalers are the Vodafone’s and Verizons. So if it all goes pop, those balance sheets are gonna face some serious write downs.
 
Colm Fagan said:
but is it worth sacrificing an average of 4% a year, every year for fifteen years, for a slightly smoother journey?
Click to expand...
I’m mid-40’s and a 100% equities guy for the long haul, but because of sequence of returns risk I would not be comfortable pulling the trigger on a retirement today if I had reached a specific FI number off the back of this run-up in equity prices. So I’ve found myself agreeing with you to an extent, but with one caveat/clarification. That is, am I correct in saying your belief in 100% equities both sides of a retirement date is based on a regular 65yo retirement, therefore a huge run-up before retirement like recent years can be expected to be followed by leaner returns immediately post-retirement but the prior run-up allows for that, in which case it’s actually the drawdown rate that provides the risk management? I mean, if I hit 65 in 1999 during an amazing run-up in the dot.com boom, I’d have started retirement with a much bigger fund than had it been a standard 10% market for the prior years. But, if I was mid-50’s in 1999, and the boom meant my fund hit the magic million years ahead of schedule so I decided to pull the trigger early and withdraw 4% annually, I suspect the subsequent retirement would have hit some problems with the dot.com bust and the GFC occurring in the first 10 years.
 
I think my main point of difference with some of the posters above is that I don't see "equities" as a homogeneous class. I perceive some of the "equities" in my pension fund as being much closer to bonds than to equities, for example, my largest individual holding, Standard Life (formerly Phoenix Group Holdings). Its dividend yield is much higher than that of a bond (the yield was higher again, but the price has increased more than 25% since the start of the year, so the dividend yield is now much lower but is still much higher than a bond). In addition, with a "pseudo bond", there is a strong likelihood of future increases in dividends while there's zero chance of a bond coupon increasing in future.
I can't see myself ever buying a "real" bond instead of a "pseudo" bond, given the differences in yields.
Readers may be interested in the attached presentation to the Experienced Investor Forum on Wednesday last (16 September). It expands on some of the points mentioned above. It consists of just eight slides, not too much text.
 

Attachments

JoeRoberts said:
But the pension investor is not buying the gilt and holding to maturity
Click to expand...
Many allocate a portion to a 30 year to hold to maturity and provide a base income via coupons and allocate another portion to the 20/10 year gilts and a third portion to a 10 year gilt ladder.

There are quite a few calculators online that allow the pension investor to specify their annual required income and the calculator provides them with details of the exact amount of each maturity they need to buy to provide the specified amount of income over the, for example, 10 year ladder.

Then, during year 1, they'd have the coupons for the 10 different maturity years gilts held and one maturing. Then, year two, they'd have the coupons for 9 and another maturing, and so on.

Obviously, this is the strategy during drawdown as opposed to accumulation.
 
A number of eagle-eyed readers have asked why the withdrawal amount in year 1 (2011), as shown in slide 4 of my presentation, was so much less than 6% (actual: €47 per €1,000 invested), given that Irish tax law requires me to withdraw 6%.
There are two reasons, the main one being that a portion of my fund, called the "Approved Minimum Retirement Fund" (AMRF) was exempt from the requirement to withdraw 6%. As I recall, this had something to do with the fact that I didn't have any DB entitlement and so was entitled (required?) to hold back some of the fund until age 75.
An Irish pensions expert will, I'm sure, be able to advise the purpose of the AMRF.
The second reason for the lower withdrawal amount was because the fund's value fell in year 1 (the dreaded "sequence of return risk"!!). The withdrawal requirement relates to the current value of the fund, not the original amount invested.
 
Can I ask; how many weeks/months/years of cash do you maintain for living expenses? Or, how far in advance of spending do you sell shares?
 
jpmackey said:
Can I ask; how many weeks/months/years of cash do you maintain for living expenses? Or, how far in advance of spending do you sell shares?
Click to expand...
As per Slide 5, in line with the "no passengers" objective, I normally have at least 99% in shares, typically around 99.5%, with just the next month's withdrawals and expenses (platform fee) in cash. Withdrawals are monthly. That doesn't necessarily mean selling shares every month. In some months, dividend receipts are more than sufficient to cover outgo in the following month. When dividend receipts exceed outgo by a significant margin (in April, for instance, dividends typically exceed two or maybe even three months' outgo) I tend not to bother reinvesting for the very short-term but keep the money in cash.
 
CharlieMac said:
Can you tell us what 13 companies you are currently invested in?
Click to expand...
The quick answer is no! It would serve no useful purpose. Some of the holdings are very small (the smallest is less than a sixth of my largest one), some I bought ages ago and I'm not sure now why I bought them. In fact, I've just looked at the smallest now and decided it's a dog. I'm thinking of getting rid of it. I'll probably write about it when I've sold it!
There's no intention to hold back the information but, on the other hand, the last thing I want is people thinking I'm some sort of a genius and trying to replicate my portfolio. If I were starting afresh, I would probably have quite a different portfolio to the one I actually have. Others aren't saddled with the same mottled history - or they have their own, different, mottled history!
 
Last edited:
I was asking Gemini AI about your investment strategy, he was very complimentary about you. I was advised that your portfolio and approach wouldn't be suitable for someone in the early accumulating phase of building a pension fund due to the fees associated with a self administered PRSA.

I have an execution only AVC PRSA which I have no plans to change but it is interesting to learn about what's involved in a self administered approach.

There are a lot of online tools that allow you to quickly summarise companies performance, discounted valuations and so on. What tools and resources do you use when deciding say to replace a dog in your portfolio with something else more promising?
 
CharlieMac said:
I was asking Gemini AI about your investment strategy, he was very complimentary about you.
Click to expand...
How the hell would Gemini know anything about my investment strategy? The power of AI frightens me at times.

CharlieMac said:
What tools and resources do you use when deciding say to replace a dog in your portfolio with something else more promising?
Click to expand...
Firstly, I've just sold that "dog", so my portfolio is now down to 12 shares. I hope to post soon about why I got rid of it. It was more related to its tax inefficiency than anything to do with the share itself. I should have sold it ages ago, but just never got round to studying it.
I don't use any "tools". It's just pot luck whether I look at something or not. That's probably where AI would be a help, but I've never really got my head around it.
I've "boasted" about there being no transactions whatsoever on my portfolio in 2023. To be honest, I think that was simply because, at that time, I hardly looked at my pension fund's performance. I was still hoping that government would take my AE proposal seriously and at least agree to having it evaluated independently. As you know, they didn't. All my efforts were in vain. I don't know if the performance of my pension fund would have been better if I had studied it occasionally and had a few transactions in 2023.
 
Last edited:
You must log in or register to reply here.
Back
Top