‘Can I grow my investments by 20% a year?’

Thomas is 67 and his wife is 69, and they receive £24,560 a year from state and workplace pensions. That includes a teacher’s pension with a degree of inflation linkage. The couple also own a mortgage-free property worth around £275,000 as well as a caravan they recently bought. They have five children who are financially well-established.

Thomas says that the couple's substantial retirement income has allowed them to “live comfortably” without relying on his private pension, bar a 25 per cent lump sum he took out a few years ago.

Comfortable as the pair are, Thomas wants to maximise his investment growth and would like to know if there are any “glaring gaps” in his portfolio. The couple have pensions worth just over £60,000 and Isas worth £117,000. However, there also have £145,000 sat outside these tax shelters and they are using their annual allowances to move this money across.

The combined £322,000 is invested in funds, following Thomas's strategy. “Investing for growth rather than income has always been a priority and I have always been reluctant to consider buying an annuity, or investing in long-term low-yield bonds – owing to the very poor rates offered compared with some emerging growth stocks and equities,” he says.

“As far as rates of return, I hope with moderately adventurous investing – in growth industries dealing with alternative biotechnology and sources of energy helping towards net zero – that it should not be unrealistic to expect between 12 and 20 per cent annual return measured over a period.”

In terms of sector preferences, Thomas notes that biotechnology, information technology, healthcare and alternative energy are “bound to figure big from here”, with these likely to feature more prominently in the portfolio than the traditional energy majors. “I appreciate in any emerging industries there is a time lag between R&D and profitability. I am not one to respond to herd mentality and panic and sell when I see my shares fall only to buy them back as they reach their peak,” he says.

However, he did find that too many of the funds he owned were concentrated in "the same few computer and software technology companies, which appear overvalued”. He has held on to a few Baillie Gifford funds thanks to the firm’s good track record in finding promising newer companies, and in the hope that events of the past year have left them undervalued and likely to recover.

On the subject of his children, Thomas notes: “We naturally would like to leave our money to our next of kin as free from inheritance tax as possible. But our main concern is that there is sufficient income for the survivor of us to live comfortably and still be able to contemplate major expenditures such as care costs and home alterations any increasing disability brings with it.

"We hope that way, the surviving one of us will be welcome and able to finance any alterations or extension to a daughter’s home to accommodate us in our very old age, or even buy a property near to a relative to offer security and peace of mind.”

NONE OF THE COMMENTARY BELOW SHOULD BE REGARDED AS ADVICE. IT IS GENERAL INFORMATION BASED ON A SNAPSHOT OF THESE INVESTORS' CIRCUMSTANCES.

Ben Yearsley, investment director at Shore Financial Planning, says:

So, to the basics first and Thomas and his wife appear to have a comfortable lifestyle with their various pensions – no mortgage and a new caravan all paid for! Their biggest concern is to ensure that if something happens to one of them, the other has enough to comfortably live off with a reduced pension.

To that end they aren’t drawing down or taking income from their Sipps, Isas or non-tax wrapped investments. They also use as much of their Isa allowance as they can each year and some pension too. With their non-tax wrapped pot at about £145,000 they have at least another three tax years when they can utilise their full Isa allowance each – though they might be more restricted with bed and Isa/Sipping with the new much reduced capital gains tax allowance.

One thing they should have is a cash reserve – maybe six months of expenses. Instant access accounts are paying almost 3 per cent now.

Thomas is a growth investor and expects over time his investments to deliver 12 to 20 per cent per year. I’m sure Thomas is looking at the past returns of higher-risk funds and extrapolating that to the future or maybe looking at what percentage some of his holdings have fallen by. Try reining back your expectations – then if they get exceeded, you’ll be pleased rather than disappointed. Factor in 8 to 10 per cent for higher-risk investments per year.

In one sense I agree with your strategy – too many people when they retire dial down the risk too much without considering how long they will live for and the fact many still need their pot to grow. However, where I disagree is in what you should have in your portfolio.

We are in a different economic and market environment now compared with the past 14 years. Interest rates may or may not have peaked, may have further to rise but may well fall back by the year end. Whatever happens, they aren’t going back to zero again. Inflation is fairly well embedded and will probably settle somewhere above 3 per cent – therefore rates can’t be zero. That changes the outlook for valuations for growth stocks massively. It doesn’t necessarily change their fundamentals – just what investors will pay for them.

So an investment pot of around £320,000 leads me to 10 to 15 holdings each of about £20,000 to £25,000 a time. It looks like he has 11 to 12, so about the right number. However, with the exception of Polar Capital Global Insurance (IE00B61MW553) and the Asia/China holdings everything is pointed in a similar direction. All are growth focused, therefore you aren’t getting much diversification by having extra holdings. I think the coming decade will be much more about income and that income being a bigger proportion of total return. It doesn’t matter that Thomas doesn’t need income as he doesn’t have to take it. Any income-generating investments should be in the Sipp or Isa to keep it tax-efficient.

Diversification is important. Why have Fidelity Global Technology (LU1033663649), the technology ETF, Baillie Gifford Long Term Global Growth (GB00BD5Z0Z54), Baillie Gifford Positive Change (GB00BYVGKV59), Baillie Gifford American (GB0006061740), Rathbone Global Opportunities (GB00B7FQLN12) and the Legal & General US Index fund (GB00BG0QPL51)? Yes they have different holdings but all are very growth focused – especially the three BG funds which will perform in tandem.

Anything I haven’t mentioned I would keep. Of the ones mentioned I would sell Baillie Gifford American, Baillie Gifford Long Term Global Growth and the iShares tech ETF and L&G Tracker. This realises about £55,000. With this money I would add First Sentier Responsible Listed Infrastructure (GB00BMXP3956) and Redwheel Global Equity Income (GB00BMBQN677).  Both are excellent funds in their own right and both add diversification to the portfolio, reducing the outright growth bias by adding in defensive growth and more value.

Scott Gallacher, chartered financial planner and director at Rowley Turton, says:

The reader and their spouse are enjoying a comfortable retirement, with their pensions covering their expenses. In addition, they are mortgage-free and have implemented sound tax-planning strategies, including contributing to a Sipp and utilising Isa allowances.

While I acknowledge the reader's concern regarding potential care fees, it is not practical for people to fully plan for such expenses. Only one in four people will need care and should the need arise there are options such as long-term care annuities that may prove helpful in such situations, especially given their assets and their mortgage-free property.

Regarding their portfolio, the reader, and his wife, are happy with their current high-risk approach. But I think it would be sensible to diversify their portfolio. Concentrating solely on high-growth stocks carries a higher level of risk, and diversifying across different asset classes such as bonds, cash, and other alternatives may be a better approach to reduce volatility. This can preserve and grow their wealth more conservatively, though it may result in potentially lower returns. Therefore, I suggest that the reader reduce their exposure to growth stocks and establish a balanced portfolio with income-generating assets such as bonds, dividend-paying stocks, and property.

If the reader decides to move in with their daughter in the future, it is advisable to seek legal advice to ensure that both parties' financial situations are protected. Furthermore, the value of the reader's estate is currently comfortably under the inheritance tax threshold, which is partly due to their Sipps being exempt from IHT. This will only increase as they move more and more of their savings into their pensions, espeically when the annual pensions allowance rises to £60,000 next April. However, if IHT does become an issue, various estate planning options are available, such as gifting to family members or setting up trusts, which can help reduce liabilities.

Like many of my clients, they continue to save and invest, even in their retirement years. However, given their age, it may be more beneficial for them to enjoy their current capital and make the most of their retirement before any potential health issues arise. As a financial adviser, I frequently encourage my clients to spend money and remind them that life is not a dress rehearsal.