‘I’m 53, and may soon be forced to retire. How should I invest £65,000?’

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Dear Victoria,

I would like my portfolio rated. I have as follows in a stocks and shares Isa:

In my Sipp:

Most of these funds are currently in the red for me. 

I have £30,000 cash that I would like to drip into my Sipp to get tax relief, but I need it to go into a fund or place that will cover inflation, but where I can get it when I turn 55 without losses.

I am 53 years old with recently diagnosed health problems and may have to retire suddenly. What do you suggest? 

Also is it true you can put up to £60,000 into a Sipp and get tax relief in a single year regardless of your earnings?

Yours Sincerely,
James

Victoria says:

I’m so sorry to hear about your diagnosed health problems, and wish you a speedy recovery. But it’s a good idea to plan for the eventuality of having to retire early. 

With the potential for your career to end before you reach retirement age, I agree that you should be focussing on finding inflation-topping investments.

Kicking off with your Isa, I like how you’ve chosen a geographically diversified mix of funds. While Blackrock Greater Europe Investment Trust has performed well in the last year, I can understand your frustrations that both Federated Hermes Global EM and Baillie Gifford Positive Change haven’t delivered for you.

I think your personal circumstances align with taking a low-risk investing approach. As such, I’d suggest switching out of your riskier global emerging markets fund. Instead, why not add something with greater stability which adds diversification across asset classes, such as a bond fund?

Interest rates look to have peaked, so the negative run for bond prices is likely to be over. In the event of an economic downturn, bond prices could also rise, as investors turn to their secure income stream. A low-risk approach to the market is Vanguard Global Bond Index £ Hedged, which owns nearly 15,000 bonds from around the world and uses financial derivatives to hedge out currency changes.

In terms of your Sipp, I see you’ve got a mix of funds, investment trusts and a couple of stocks. 

Your single stock holdings, Speedy Hire and Lloyds, have both struggled over the last year. If you feel strongly towards them then keep hold of them, of course. 

If not, I’d be tempted to cut your losses on these, to make your portfolio more streamlined. Lloyds would be my top pick of the two – it has a tempting dividend yield of around 6pc and came out as a winner in the latest earnings season across the UK banking sector. But be mindful that banks are correlated with the economic cycle, and the UK’s recession risk is on the rise.

Moving onto your Sipp’s funds and investment trusts, I see you’ve got two wealth preservation trusts – Personal Assets Trust and RIT Capital – which appear to suit your goals. But digging deeper, RIT Capital has struggled recently to deliver on its goal of preserving shareholders’ capital: shares have dropped 11pc in the past five years and are down about 35pc in two years. 

Looking at its asset allocation – 41pc in private equity and 27pc in quoted equity – does not fill me with confidence that this trust is right for your risk profile.

You could think about offloading this holding and recycling it into the Vanguard LifeStrategy 20% Equity fund instead, which should benefit from higher bond yields and steadier bond prices.

With your £30k cash to deploy, you could add to Personal Assets Trust, which like Ruffer has a capital preservation goal and is packed with inflation-linked bonds to achieve this. 

Depending on your personal risk appetite, you could add to the Vanguard 60% Equity or Vanguard 20% Equity, which are well diversified portfolios that therefore shouldn’t be too volatile. More equities suggest higher risk, but that is not always the case, as we saw last year when rising interest rates hammered bond prices.

Even though these funds are defensive, there is no guarantee that they will beat inflation. Because you say you want to beat inflation “without losses” over the next two years, then I’d suggest that you think very hard before overloading on stocks. Two years isn’t long, so to ensure you meet your goal, money market funds are something to consider.

They invest in bonds due to mature soon, and bank deposit accounts, to deliver a “cash-like” return to investors. Given the rise in interest rates, yields are now around 5pc on money market funds. UK inflation is forecast to fall to about 5pc by the end of the year, and keep dropping into 2024, so money market funds should be able to give you the inflation protection you’re after, without the stock market risk.

Funds to look at include Royal London Short Term Money Market, L&G Cash Trust, and Fidelity Cash. These funds are not without risk, and the Bank of England and Financial Conduct Authority have expressed concern that during a stock market panic there may be liquidity issues, but they offer a much steadier return than traditional stock and bond market funds. 

Finally, let me answer your question about whether you can put up to £60,000 into a Sipp and get tax relief in a single year, regardless of your earning. You can contribute up to £60,000 each tax year to your pension, or 100pc of your income, whichever is lower. This limit is spread across all your pension schemes and pension contributions, including tax relief and any employer contributions. 

Watch out though, because the £60,000 limit could be reduced if you’re a very high earner with income over £200,000, or you’ve started to draw taxable income from your pension. If you haven’t used your annual allowance in previous tax years, you might be able to carry forward any unused allowance, but double-check the rules as accidentally breaching the annual allowance could result in a tax penalty.

Wishing you all the best with your physical health most importantly, and with your financial health, too.

Victoria is head of investment at Interactive Investor. Her columns should not be taken as advice or as a personal recommendation, but as a starting point for readers to undertake their own further research