'How do I get the most out of my £1mn pension and Isa?'

Those saving for retirement often have a set vision of the future, be it seeing the world in their 60s, spending time with family or moving to a dream location. But not all of us have such a concrete idea of what's to come, meaning we need a flexible investment approach.

That's the case for Jemma and her husband Dmitri, who have an unusual set of circumstances. "Most of our peers seem to be settled with a stable income and kids growing up," Jemma notes. "At 50 (me) and 56 (my husband), we are not. We still need an investment approach that handles uncertainty, although we don't necessarily mean low risk, as we're in no hurry to retire."

The couple's circumstances do take some unpacking. Jemma is a director at a small tech firm and currently makes £72,000 a year. She expects to be in this role for just a year or two longer, but is unclear on what the future might hold for her in terms of income or career path. 

"I can imagine a wide range of potential outcomes, but I certainly plan to continue in some kind of work. But there may be a lull in income while I transition," she says.

Dmitri earns around £61,000 a year as an academic, and while his job is stable, it involves him living abroad. "As a result, we may decide to relocate, or partially relocate and are currently trying to purchase property abroad (with a separate cash pile which has been set aside for that). I would likely remain dual-resident in the UK/overseas for a few years," Jemma says.

Jemma and Dmitri have a family of four children, two of whom are under 18. "In principle, we want to help our children make a good start in life, but there aren’t clear goals at this stage in terms of gifts, inheritance, or help with housing," she says. 

"In 10 years we’ll have a much clearer view of our wealth and, right now, none of the kids are yet set on a career path. They hold multiple nationalities and we don’t know where they’ll choose to live."

Uncertainties aside, Jemma and Dmitri have made good progress on the investing front. Jemma has nearly £570,000 in an individual savings account (Isa), with a similar amount in her pension. She makes good use of investment trusts, with some positions in company shares and exchange-traded funds (ETFs). Dmitri has £220,000 in an Isa invested in around 20 investment trusts, with a £110,000 pension invested in tracker funds of different stripes and around £105,000 in overseas investments.

Jemma has a long track record of investing and wants to run her portfolio but struggles to find the time. "Cash builds up and then I blitz it every couple of years, setting up a load of limit order instructions, some of which never execute," she says.

She wants to diversify but stick with investment trusts. Jemma believes it could be the time to invest more in infrastructure as interest rates start to fall, wonders whether to load up on Japanese stocks and small caps and thinks a turning point could come for battered healthcare and biotech stocks.

Dmitri, meanwhile, wants a mix of steady dividend payers that provide a decent return, allowing him to reinvest in some riskier investments such as Scottish Mortgage (SMT).

Jemma should qualify for a full UK state pension. Dmitri's contributions are equivalent to a UK state pension of £7,632 a year at the age of 67. The couple has a UK property, mortgage-free, worth around £900,000. They also have cash set aside to buy a property, mortgage-free, in Europe.

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

Rachel Winter, partner at Killik & Co, says:

While your plans for the next few years are uncertain, you make it clear that your investments are intended for your retirement, and that this is unlikely to occur within the next decade. Your investment portfolio should therefore be targeting long-term growth, and we can consider your existing investments in light of this.

You have a lot of experience, a good understanding of markets, and enjoy making your own investment choices. However, you admit that the portfolio is sometimes neglected for extended periods. A challenge with owning so many globally diversified investment trusts is that most of them only publish their top 10 holdings, making it difficult for you to analyse your full portfolio and to know exactly how much exposure you have to each country and each sector.

There is overlap between many of the investment trusts that you hold. For example, F&C Investment Trust (FCIT), Brunner Investment Trust (BUT), and Mid Wynd International (MWY) all have Microsoft (US:MSFT) as their top holding. In addition to this, you have a very large direct holding in Microsoft. Microsoft is a fantastic business, but it accounts for over 25 per cent of your invested pension assets and there is therefore a lot of single-stock risk.

It’s good to see a healthy exposure to Japan. The country is home to many great companies, such as Keyence (JP:6861), which is a leader in automation. The MSCI World index, which contains around 1,500 constituents across 23 developed countries, has a 6 per cent Japan weighting and only a 4 per cent UK weighting. Despite this, many UK-based investors overlook Japan.

I agree with your points about infrastructure, biotech and smaller companies. Investors have previously bought infrastructure for yield, and the asset class has suffered of late, as high interest rates meant attractive yields were available via lower-risk assets such as government bonds.

Higher interest rates have also meant that funding has become more challenging for biotech and smaller companies. However, we are now facing the prospect of falling interest rates this year, and this could well prompt a recovery for some of these struggling asset classes.

Finally, there is a significant amount of cash being held in both your Isa and pension. Assuming this is separate from the cash that you will use for the new property, and given that you are unlikely to draw on the investment accounts within the next decade, I think you should be more fully invested. Corporate bonds could be a good addition as these are still paying attractive yields and your existing exposure is limited.

Peter Hargreaves, financial planner at EQ Investors, says:

I think you need to establish more specific, measurable and time-bound objectives. Defining your retirement timeline and desired income needs will help in knowing whether or not your current pension and investment strategies align with your goals. Given that objectives may evolve, periodic adjustments to your financial planning are essential.

Understanding your risk profile is crucial for pension and investment decisions. Given that retirement may be a decade away, the current 100 per cent equity allocation appears sensible.

While your portfolio displays diversification, a more defined strategy could be beneficial. Simplifying your holdings by reducing the number of investments, and favouring investment trusts alongside global index-tracking funds, can streamline your portfolio management while providing you with good diversification and exposure within the portfolio. It will also be much easier to review going forward.

It's noted that you see good growth potential in sectors such as Japan, the UK, healthcare/biotech and infrastructure. While active funds may suit smaller markets, your investment trusts are likely to already cover these sectors. Caution is advised to prevent becoming overweight in speculative sectors, especially considering existing exposures to healthcare and Japan through holdings such as F&C.

In summary, refining your objectives, using cash flow modelling, assessing risk profiles, and streamlining your portfolio can offer you a manageable, well-exposed and diversified portfolio and address the uncertainties you've identified.