'How do I substantially grow my £111,000 pension in 10 years?'

Successful investing is often a marathon effort, with individuals putting money to work in a consistent manner over several decades. But not everyone has the luxury of time when it comes to maxing out their savings.

Martin, for one, is aware he needs to substantially grow his pot in a relatively short period of time. He is 59, earns £40,000 a year and has around £111,000, predominantly in investment trusts via two different personal pensions. His wife, Jane, is 57, also has a £40,000 income and already receives an index-linked workplace pension of £8,000 a year.

The couple have a mortgage that should be paid off by the time Martin is 67, both should receive the full state pension and Jane has two investment properties worth £500,000 after their mortgages. She also has an investment portfolio worth around £10,000, while the couple have £40,000 in cash.

These assets are not insignificant, but Martin is conscious of a need to grow what he has before he turns 67, when his state pension kicks in and he plans to “reduce working and only generate income for holidays and similar”. He adds: “Life events have significantly impacted my pension pot. I do not have an occupational pension and I will be relying on my state pension and what I can generate from my personal pension."

As such, Martin wants to maximise his savings by taking what he describes as “reasonable risks”. He has an “assertive” appetite for risk as part of this quest, noting that he is prepared to lose 10 per cent a year. He has, in fact, already lost between 25 and 30 per cent since late 2021 when he moved into his current portfolios of investment trusts – but is hopeful these will recover. In terms of returns, Martin wants more than 5 per cent a year in the eight years before he turns 67, and 5 per cent a year thereafter.

He currently holds 19 funds, all but one of which are investment trusts, in two different pensions, with JPMorgan China Growth & Income (JCGI) and Pacific Horizon (PHI) duplicated across the accounts. Explaining his decision to have two separate pensions, he notes that he "decided to spread things a little partly to reduce costs and in case one of the providers got into financial trouble in the future”.

In terms of other considerations, Martin and Jane have adult children but no plans to make lifetime gifts. “Our children will inherit what assets remain including our properties, currently worth in the region of £1.2mn after mortgages, plus any of my pension that remains,” he says.

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

Rob Morgan, chief analyst at Charles Stanley, says:

There's a good mix of generally high-quality trusts providing broad equity coverage. However, including more passive exposure, perhaps via exchange-traded funds (ETFs), is a good idea. Investment trusts can work really well, especially in rising markets, but they do tend to add extra volatility given that they trade at a variable discount or premium to their net asset value. This is likely to become more relevant as you come to draw on the portfolio, although there are merits in mainly having investment trusts at present, owing to the significant discounts to net asset value (NAV).

By way of an example, there is little choice in the investment trust universe for dedicated US exposure beyond what you already have. An ETF option there could be the Fidelity US Quality Income ETF (FUSI), which would also help pivot the portfolio to more income-producing areas in order to start building some ‘natural income’ for the point at which you start to draw on the pot.

With the odd exception such as Murray Income (MUT) the portfolio is quite ‘growth’ orientated, so balancing this out with some ‘value’ strategies such as AVI Global (AGT) could offer different drivers of return. Incidentally, this particular trust would also provide a bit of Japanese exposure, which you are very light on. It’s not been the most dynamic market in the past, but things are changing so it is worth considering at least a small weight.

I would also suggest better diversification by asset class. In particular, bonds are back in play as a source of return, having been highly unattractive for several years. Clearly, things are going to depend on inflation, but we are probably at or close to peak interest rates, which means yields should fall (and prices should rise). Importantly, this means bonds are regaining some diversification benefits. A deep recession would probably be bad news for stocks but could result in more rapid interest rate cuts that would benefit bonds.

As well as government bonds, investment-grade corporate bond yields look attractive. Higher-quality debt will probably hold up better during an economic downturn and is cheap relative to historic prices, especially considering the strength of balance sheets.

You’ll need to keep the growth drivers and stick to stocks overall, so it’s important not to go overboard with bonds. It’s another easy way to secure cash flows into your pot that you can draw without the need to sell holdings. Some options for broad exposure include the Vanguard Global Bond Index fund (IE00B50W2R13) and SPDR Bloomberg Global Aggregate Bond ETF (GLBL). It’s generally preferable to use the currency-hedged versions in order to cut out the volatility of foreign exchange movements.

Laith Khalaf, head of investment analysis at AJ Bell, says:

Your investment portfolio looks considered and geographically diverse. I would probably describe it as ‘punchy’ given its exposure to smaller companies, tech stocks and emerging markets. This is broadly in line with your attitude to risk, but I would say this portfolio could fall 20 per cent in a year, as you may have recently experienced, so that’s not entirely compatible with your desire to keep losses to 10 per cent a year.

That aside, I think there might be other reasons to reassess your risk tolerance. As you approach retirement, the investment game shifts a little from growing your assets to protecting what you’ve got. Clearly, there is a balance to be struck here, but there are some questions you should ask yourself.

You have a target for growing your pension, but what about how you will use it? You can draw it as cash, buy an annuity, or continue to invest it. Or a combination of all three. The answer to this question will dictate how you invest in the run-up to retirement.

I’d suggest taking a look at whether the guaranteed income you’re going to receive from the state and occupational pensions will cover your basic standard of living in retirement. If not, then consider using some of your pension to buy an annuity, which provides you with a secure annual income. If that’s the case, you should start to think about gradually reducing the risk in your portfolio in the not-too-distant future. You’ll probably want to take 25 per cent of your pension as tax-free cash too. Again, that suggests some de-risking is in order. You don’t want to be fully invested in the market three months before taking your cash only to see it fall by 20 per cent.

Combined with your property income, you may well decide that you can afford to stay invested in retirement and draw an income from your portfolio, with the risks and variability that entails. I suspect even in that case it would be a good idea to dial down risk, perhaps shifting towards more income-producing assets such as equity income funds and bonds.

You could take a full-blown growth approach and simply take profits each year to fund your lifestyle. But that is high risk, and would probably require you to cash in investments when prices are low at some stages in the market cycle. That’s not to say there’s no room for growth funds, but perhaps a greater focus on income would be sensible.

One way or another then, you should shift the portfolio a bit and dial down risk. The timing of this might seem tricky. As you say, it’s generally not a good idea to sell out after a 30 per cent fall in your portfolio, but at some point in the next few years, gradually shift your portfolio towards what you want it to look like at retirement. I’d emphasise the ‘gradually’ here, because by doing this in steps you’ll mitigate the risk of selling out at a market low or buying in at a market peak. As a rough indicator, most workplace pension schemes will look to de-risk savers over a period of five to 10 years before retirement.