‘I’m 66 and drawing down a £440k pension. Indecision and jitters left me with a cash pile – what should I do?’

Going forward, an element of capital growth would be welcome, but while I do have some other cash reserves to draw on in bad years I would prefer to stick with lower-risk income stocks.

The last three holdings have all taken a hammering over the past year and are largely responsible for my portfolio looking a little sad right now.

Regards,

Laurence

Victoria says: 

You’ve got a great mixture of well-known investment trusts and hidden gems, which shows that you have clearly done your homework, and all those hours reading the Telegraph Money pages are paying off.

Just as importantly, you’ve also got your head in the right place – the last thing you want to be doing, and shouldn’t be doing, with your precious retirement is constantly checking investments. I’m sure you’ve got many more fun ways to spend your time.

You say you’re worried about not being diversified enough, but I think you’ve done a good job of spreading risk. I like the fact that instead of individual shares, you’ve gone mainly for investment trusts which, like open-ended funds, invest in a basket of underlying assets, helping to balance your portfolio.

You’ve got a decent spread across geographies and asset classes, with no single investment trust dominating your portfolio, which is one of the most common mistakes I see when reviewing them. Your preference for lower-risk income funds given your stage of life is spot on now that your pension is in drawdown. The spread of income is great to see.

Your exposure to more alternative assets focussed income investment trusts is small, which feels sensible. But while you don’t want to be checking your portfolio every five minutes, I do think it’s worth making sure you are comfortable with your risk before you sit easy, even for smaller holdings. 

For example, the gearing (borrowing) levels on Hipgnosis Songs investment trust is currently 22pc. Its shares are down 22pc over the past year and its gearing limit is 30pc. Bear in mind that market falls can mean that gearing as a ratio can increase as assets under management fall with the market.

You have higher exposure to Triplepoint Social Housing – around 3.75pc. This is a sector that has had some dark clouds over it, as the widening discount illustrates, currently around -59pc. Gearing on this trust is even higher at 45pc. You may well be enjoying getting a 10pc income yield on shares trading on such a huge discount, but you may want to take a closer look.

Having only your SIPP portfolio to look at, it’s tricky to get the full picture of your financial and personal circumstances. For example, if you have a partner with a guaranteed pension income, you may feel able to take slightly more risk with your own portfolio, whereas if you have no other income, it might make sense to consider an annuity to cover your basic needs. I asked ii’s pension expert Alice Guy about how much cash you should be holding. She said as a rule of thumb there should be enough cash for medium term expenditure.

There can be good reasons for holding cash in your SIPP and you know your own circumstances and risk appetite. With interest rates on cash having risen, it’s worth comparing cash rates across investment platforms. You could also look at putting some of the cash into a money market fund, such as Royal London Short Term Money Market. By investing in high-quality bonds set to mature very soon (26 days on average at the moment), the portfolio pays about 4.5pc in income, while avoiding the volatility of other parts of the bond market.

In terms of portfolio construction there are 19 investment trusts that are classed as “dividend heroes”, having raised payouts for at least 20 consecutive years. Of those, aside from Merchants Trust which you already own, City of London and JPMorgan Claverhouse, both with yields of around 5.4pc – slightly above Merchants Trust at 5.3pc – are examples that could be of interest.

City of London, a member of interactive investor’s Super 60, is a consistent performer, with fund manager Job Curtis adopting a conservative approach in focusing on companies with good cash generation. Curtis, who has managed the trust since 1991, mainly sticks to the dependable, larger-company FTSE 100 dividend-payers. And JPMorgan Claverhouse invests in a mix of both value and growth stocks. It is a 60-80 stock portfolio of best ideas invested wholly in quoted UK equities.

Not all your portfolio should be geared towards income, however. At just 66, you’ll hopefully have a long retirement ahead. If you’re looking to add some steady growth to your portfolio, F&C Investment Trust could be an option. Since manager Paul Niven took over in 2014, the global stocks trust is up 172pc, well ahead the 106pc return for the average global shares trust and 154pc for the FTSE All World index. This could be a good way to spend some of your cash and build a core position. 

Finally, and more broadly, I understand your apprehension around moving from accumulation to decumulation. But it doesn’t have to be as scary as it sounds.

Retirement is no longer the cliff edge it used to be. You have built a nimble portfolio with a manageable number of holdings. Once you feel more comfortable with your selections, you can focus on enjoying your freedom.

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.