‘I’m 63 and retired with no mortgage or children – and I want to spend my £1m wealth’

Couple in their 60s enjoying life on the beach

Would you like Victoria to rate your portfolio? Email [email protected] with the subject line: “Rate my portfolio”. Please include a breakdown of your portfolio, your age and what your investing goals are. Full names will not be published.

Dear Victoria,

I am a 63-year-old retiree with a defined benefit pension paying £30,000 per year.

My wife is 67 and has two defined benefit pensions totalling £37,000 together per year, with an annual state pension of £9,000.

We each have £20,000 in Premium Bonds and have joint cash investments totalling £186,000. In addition, we have £718,000 invested in Isas, my Sipp and a trading account.

We have no mortgage, children or debts, and so our objective is to spend our savings and enjoy life in the time we have left.

We’re fortunate in that we have a good pension and substantial cash savings so we’re comfortable with a level of risk, but wondering whether:

We’re too heavily invested in US hi-tech?

We should consider switching our Isa investments into something that will generate a tax-free income?

We should reduce costs by selling high-fee investments (i.e. those greater than 0.7pc) and buy more of those that charge a lower fee?

How would you rate our portfolio?

Dave

Dear Dave,

With no debts and over £1m in wealth, you and your wife are clearly well set up for a comfortable retirement. Plus, unlike many retirees, you’re not having to think about inheritance, giving you the freedom to get spending and make the most of the money you’ve successfully accumulated throughout your working lives.

I like the fact that you’ve kept your portfolio simple, sticking to a handful of funds rather than falling into the trap of “diworsification” that I so often see. And you’ve selected some fantastic performers that have powered your portfolio, such as UBS US Growth and L&G Global Technology Index Trust, which have returned a whopping 425pc and 730pc respectively over the last decade.

Having said that, addressing your question about whether you’re too heavily invested in tech, I worry the answer is yes. Not only do you have quite a high percentage allocated to dedicated tech funds, but you also hold US funds, which often invest heavily in the same sector.

Take Baillie Gifford American as an example, which aims to outperform the S&P 500 – its top 10 holdings include Nvidia, Amazon, Meta and Netflix, among other tech names, meaning some of your funds are more closely correlated than you might imagine. This leaves your portfolio in need of greater diversification beyond US mega cap tech into other sectors and geographies.

Also, your leaning towards tech makes your portfolio very growth-focused, which is probably more suitable for a younger investor looking to grow rather than live off their wealth.

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Addressing your next question, I do think it makes sense to consider switching some of the holdings into income funds within your Sipp and Isa wrappers instead. Partly shifting away from growth towards income is prudent – it will give you more peace of mind while simultaneously allowing you to supplement your defined benefit pensions.

You could consider dropping Baillie Gifford American, which accounts for almost 20pc of your Sipp and 30pc of your trading account. I don’t like how volatile this fund has been, having lost 50pc of its value in 2022.

If you want to take some risk out of your Isa, your £186,000 investment in L&G Global Technology Index Trust is the obvious one to trim. While performance has been excellent, it’s now got more than 40pc in just three stocks: Apple, Nvidia and Microsoft. If excitement about artificial intelligence turns out to be misplaced, then these companies could suffer and bring down this fund with them.

Instead, consider some more defensive equity funds, that should protect capital better in a downturn and have higher dividend yields, which will add to returns when markets fall.

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Capital Gearing Trust is one option. Run by Peter Spiller for more than 40 years, it is a “wealth preservation” strategy, packed with inflation-linked bonds, that has delivered 8.3pc net asset value returns annualised since 2000.

I’d also look at City of London, a UK equity income investment trust that is on a rare 3pc discount. It yields nearly 5pc and is a “dividend hero”, having raised its payout for 57 consecutive years.

A dedicated bond fund also deserves a place. I like Invesco Sterling Bond, which currently has an income yield of 4pc.

Bonds tend to do well when interest rates fall, so with the Bank of England expected to begin cutting rates later this year, it could be a good time to buy. The inflation-beating income also means bond investors are being paid to wait for capital appreciation.

To answer your last question about fees, you said you were looking at cutting out active managers to save on costs. While it’s true that fees are one of the few things that investors can control, cutting them as much as possible can prove a false economy.

I’m happy to pay for an active manager if they offer something that a passive fund cannot, have a good track record of outperformance, and are reasonably priced. At 0.6pc ongoing annual charges for Invesco Sterling Bond, 0.65pc for City of London and 0.47pc for Capital Gearing, I think you are getting good value from these active funds.

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