This is an audio transcript of the Money Clinic podcast episode: ‘Investment Clinic: I’m nearly 70 — will US tech stocks crash my retirement?’
Claer Barrett
Are you an index fund investor? US stock markets have made many index fund investors a fortune over the years, but market volatility under Trump is causing a lot of nervousness, especially among older investors. My guest today is rather worried.
Paul
I’m at the point where I want to start taking money from my pension plan. I feel it might be overly invested in American tech companies.
Claer Barrett
Meet podcast listener Paul. He’s 67 and has been investing carefully for decades in the run-up to retirement. But now the time has come to generate an income from his pension pot.
Paul
Some people have mentioned to me, you know, why aren’t you invested in bonds? Why haven’t you taken out an annuity? And I’m quite confused about what to do, which direction to go in.
Claer Barrett
Paul is one of many listeners who got in touch with a problem to discuss in our newly opened Investment Clinic with me, Claer Barrett, the FT’s consumer editor. In this special series of six episodes, I’ll be triaging plenty of different real-life investment dilemmas with the help of our financial experts. From 20-somethings figuring out their long-term strategy to older investors within touching distance of their retirement goals, we’ll be sharing real-life stories about investing that we hope will educate and inspire you, no matter what stage of your investment journey you happen to be at.
So what can we all learn from Paul’s investment story? Well, let’s open up the Investment Clinic and examine his portfolio. Paul, thanks so much for joining us today. What is it that brings you to Investment Clinic?
Paul
Well, I’m at the point where I want to start taking money from my self-invested pension plan, which is made up of five different funds. And what I hope to do with that is top up the other pensions and hopefully get at least 4 per cent return a year. But I’d like a bit more than 4 per cent to kind of compensate for inflation. It’s grown quite well over the last 10 or so years that I’ve had it. I feel it might be overly invested in American tech companies and the American market. So I’d like some advice on maybe how I should move it around a bit. Should I have it in a fund that tracks the overall market? I’m also sort of hear people saying, oh, why don’t you, you know, have an annuity or put money more in bonds.
Claer Barrett
Taking a lower-risk approach.
Paul
Yeah, lower risk, but more perhaps more guaranteed return. And I’d like to understand what you think about that as an idea.
Claer Barrett
Now, as you’ll hear, Paul has made some shrewd investments and has a solid safety net. He has two final salary pensions — lucky him — and a rental property, all generating income. He holds index funds, which are dominated by the big US tech stocks, the so-called Magnificent Seven, in his stocks-and-shares Isa and in his Sipp, his self-invested personal pension. Thanks to years of careful nurturing and the power of compounding, Paul’s share portfolio is now worth an impressive six-figure sum. But as he enters a new phase of life and his priorities change, he’ll have to think carefully about how he puts his money to work. One question for Paul to consider is does he enjoy managing his investments?
Paul
I see it as a bit of a chore, really. And I’m quite easily confused about what to do, which direction to go in. I don’t really understand the stock market, and I didn’t want to gamble on individual companies, investing in individual companies. And so the option of having the investment in a fund that was spread across a range of companies that had a bit of a track record of growth, that wasn’t kind of crazy growth. I didn’t want a lot of risk, but I wanted, you know, I could accept a little bit of risk for some growth.
Claer Barrett
So when you picked these funds 10 years ago, why did you mostly go for ones with exposure to the US?
Paul
I felt the UK market wasn’t really growing, and I’ve . . . just seemed to me that the US market and maybe the Asia-Pacific market was growing at a better rate. So I chose some funds that follow that criteria, and I also picked some funds that did have some of the big American tech companies in them.
Claer Barrett
And why is it that you’ve picked index funds? Because the types of funds that you’ve got in your set, they’re not the kind we would describe as an actively managed fund with a big-name fund manager who’s investing in a small number of stocks to try and outperform the market. The ones you’ve gone for are index funds with a broad selection of different companies whose shares are on an index like the S&P 500 in America, for example. Why did you choose index funds over active funds?
Paul
Because the active funds had a fee attached to them, sometimes 1 to 3 per cent. And because I wanted to try and get 4 per cent at least. I didn’t want to lose 3 per cent straight off the bat. And I’m slightly cautious. So I went for the ones that were indexed, thinking that I can, based on how they’ve worked, get the kind of return I want.
Claer Barrett
And I mean, broadly speaking, you’re very happy with the performance of these funds. They’ve done really well, particularly in the last year. But you’re a bit worried now that they might be doing too well.
Paul
I’ve seen that the American tech stuff go up and down crazily, but I feel I should perhaps start to move away from it a little bit and be a little bit cautious about it.
Claer Barrett
OK. Well, let’s move on to your questions for us. Now, the reason everything has come into focus is because you want to start drawing down an income, potentially from your Sipp, but you want to do it in a sustainable way . . .
Paul
Yes.
Claer Barrett
. . . and not exhaust your pot too quickly. So presumably your challenge at the moment is working out how much income you might take.
Paul
Yeah.
Claer Barrett
And another thing that you’re considering is instead of keeping your funds invested throughout retirement, you could trade them in for a regular income and use your pot to buy an annuity.
Paul
Yes, but I haven’t looked into it very much. And what I hear about an annuity is I wouldn’t get the equivalent of 4 per cent. If an annuity would give me a guaranteed 7 per cent, I might think about it more seriously, actually.
Claer Barrett
Paul is grappling with whether to play it safe or keep riding that wave of US tech stocks. He’s had excellent returns from his exposure to companies like Amazon, Apple, Microsoft and Nvidia whose soaring valuations owe much to AI, artificial intelligence. Meaning they are the main engines of growth, not just for the US but the global economy. However, recent volatility in US markets caused by the sudden success of China’s DeepSeek and President Trump’s tariffs showed the amount of concentration risks some investors may be sitting on, especially if, like Paul, US stocks make up the lion’s share of their portfolio.
It’s time to bring in our panel of experts to help Paul. But before I do, an important disclaimer: we’re going to be talking about how investors might approach investment decisions, but this is intended as a general discussion. It’s not intended as financial advice or any kind of investment recommendation. Everyone’s financial situation is different, and you should always do your own research before you make any investment decisions. But we hope this episode will provide some helpful insights. So without further ado, our podcast experts today. Adam Walkom is a financial planner and the founder of Permanent Wealth Partners, based in London. Hello, Adam.
Adam Walkom
Hello, Claer. Nice to be here.
Claer Barrett
And Moira O’Neill, an award-winning journalist and FT columnist, and no doubt a voice you will recognise from many past Money Clinic episodes. Hello, Moira.
Moira O’Neill
Hello, Claer.
Claer Barrett
Now, experts, you’ve been listening outside to my conversation with Paul. Paul is entering what advisers tend to call the decumulation phase. He’s spent his working life accumulating savings that he’s very wisely invested. But now the turning point has arrived. He’s no longer got an income coming in from employment, so he needs to generate an income stream from his investments. Adam, this is a very, very common scenario that investors up and down the land will be grappling with.
Adam Walkom
Absolutely. And there are really two distinct phases most people go through in terms of needing financial advice and financial help. There’s the accumulation phase, which is making the best decisions along the way when you’re building up your pot. And then there’s the decumulation phase, which is Paul is just entering now where it’s the understanding of OK, how much do I need to live? What is my life going to look like, and where is the money going to come from to pay for that?
And those two aspects — accumulation and decumulation — are very, very different and require a really different set of understanding of markets and risk and expectations and probabilities. And it’s something that we see all the time.
Claer Barrett
Mm. Moira, it’s quite common for investors like Paul to feel quite befuddled, as you said, about all of these choices and decisions.
Moira O’Neill
Yeah, it’s a really difficult moment because Paul’s been this amazingly dedicated saver over many decades, stashing away the money for his retirement, and suddenly he’s got to start spending it. And it’s a really big psychological shift, and you can feel very cautious and nervous about spending that money because you’ve been saving in such a dedicated way. And many, many people struggle with this.
So they actually don’t end up having as comfortable retirement as they could have done, and they might end up leaving too much to the kids at the end or whatever. I mean, the idea is to really enjoy, enjoy your time and realise that it’s limited and really splash out and treat yourself within reason and make sure that your investments can do that for you.
Claer Barrett
Paul, you’re nodding along to what Moira was saying.
Paul
The money that I’ve accumulated, that’s sort of in my pension pot, whilst I’d like to live off how it grows and the interest on it, I do plan to spend it and kind of run it down. I will run it down. But when it comes to how I invest it, I want to invest it with a view to if I didn’t have to run it down. I just like to live off of the interest that it makes.
Claer Barrett
OK, well, let’s talk then about your investments within the Sipp. Now, Adam and Moira, what are your opening thoughts about the investment portfolio within it?
Adam Walkom
Well, the first thing I just want to say to Paul is congratulations, because you’ve made one single decision within your pension that has made an enormous difference. And you may not actually even know that you made that decision. That decision was your pension was not lifestyled. You made an active decision to choose your funds and have reaped the benefits over the last few years from the growth of those funds.
Claer Barrett
Adam mentioned lifestyling there. If you haven’t heard this term before, it’s most applicable to workplace pensions. Unless you say otherwise, as you get older, your money will automatically be shifted away from equities and towards supposedly lower-risk investments like bonds and cash, with the aim of preserving the capital you’ve built up. In recent years, however, bonds and government bonds in particular have proved volatile, and as Adam pointed out, this can cause lifestyled investors to miss out on gains.
Adam Walkom
If you had an employer pension, which has been either lifestyled or invested in a target date fund, which is actually the default investment scheme for most employer pensions, your investments over the last 10 years would have gradually been moved into bonds and cash.
Claer Barrett
And out of equities.
Adam Walkom
And out of equities. And so therefore, over the last five years, I looked it up this morning, a gilt fund is down 25 per cent in the last five years. So the concept of lifestyling and target date funds I think is a very, very dangerous concept that most people misunderstand in terms of thinking about their retirement planning. By just simply making the decision to actively control and choose your own funds, you are in a significantly better off position today than you would be otherwise.
Claer Barrett
Paul’s done well, but as he starts drawing down money from his pension, he faces a trade-off between growth and risk. So next, the experts are going to debate some different approaches somebody like Paul could explore. For starters, he could dial down the risk level in his portfolio by adjusting his equity exposure so it’s not so heavily weighted towards the US.
Adam Walkom
We favour index funds, but country-based index funds. So the US, the UK, the rest of world, different countries and different sectors like that. The biggest market index in the US is the S&P 500. And effectively what you’ve got at the moment is a large concentration in the S&P five. And so what we’d want to do is kind of expand your diversification to the other 495 largest companies in the US, and fair enough, these are actually pretty much the largest companies in the world. And so really kind of diversifying away from just that pure tech exposure. The other aspect in terms of thinking about index exposure is you can buy funds, which are commodity index funds. You can buy infrastructure index funds. You can buy a gold fund. You can actually buy bond index funds as well.
Claer Barrett
Adam mentioned bonds there. And that’s another option Paul might consider. He could buy a bond fund or he could go straight to the source.
Adam Walkom
Paul could look at actually buying UK government bonds directly through a platform.
Claer Barrett
But seeing as Paul has a decent level of income from his final salary, pensions and rental flats, he might feel comfortable taking a bit more risk with his Sipp than leaving it invested in equities. As Paul intends to be drawing on his Sipp for quite a while, the experts suggest he could split his portfolio into different pots, some cash or bonds for safety, some lower-risk equities and some racier equities for long-term growth. How might Paul think about that?
Adam Walkom
The best way to start is actually simply look at how much do you need and what do you want to spend. Because ultimately the best investment strategy is linked to your life. So the financial plan is linked to your personal plan. So that’s the first step is to understand what actually money you’re going to spend. What do you need the money for and when do you need it?
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Claer Barrett
If you’re considering this question, financial planners suggest envisaging three stages of retirement. I call these the Saga phase, when you’re healthy and active and want to travel the world; the Aga phase, when you’re getting older, slowing down and spending less money; and forgive me, the Gaga phase: extreme old age, which could be more expensive than you realise if care costs need to be factored in.
Adam Walkom
The second step is around the investment strategy related to that: short term, medium term and long term. And each of those actually have different investment components to them. For example, a short term you just want some cash set aside, typically with talk about somewhere between one to two years’ cash just in a savings account, not doing anything.
The advantage of cash right now is for one of the very rare times in history — the cash interest rate is higher than inflation. So that cash actually doesn’t lose value in the short term. But we call that a safety net.
Then for the balance of the funds, work out what funds you’re going to need for 10 to 15 years and then onwards from there. And you can split the investment strategy that way. So you can have your long-term investment strategy for 15 years and above. Keep the equities because that’s the growth. There is no asset class that grows as well as equities over the long term.
Claer Barrett
Moira has another idea for older investors like Paul. They could consider investments designed to produce an income: investment trusts and equity income funds that invest in dividend-paying shares.
Moira O’Neill
I tend to like investment trusts, which are a type of fund that’s listed on the stock market. There are many equity income investment trusts, and there are many equity income funds that you can also choose from. So you can get income not just from the UK. You can get US ones, European ones. There are lots of different income sources. Lots of people seem to like the renewable income trusts because they are investing in things like wind and solar power, and they generate income as part of their investment strategy too.
So there are loads of different sources of income. And if you were to move to an income strategy, maybe diversify between lots of different types. So you go for equity income funds or investment trusts that pay dividends. And basically look at what you get in income from those funds every year. And it probably will be about 4 per cent.
Claer Barrett
That 4 per cent number has come up before. Paul mentioned it at the start of this episode as his target annual return. So why 4 per cent? You may have heard of something called the 4 per cent rule, but what is it?
Moira O’Neill
It’s a basic rule that if you take 4 per cent of your money out every year, that’s a sustainable income, so it allows the rest of the pot to grow, and it means that your money won’t run out.
Claer Barrett
This rule is not a guarantee, but another investment Paul was considering to help him hit his 4 per cent plus target was an annuity — basically an insurance policy where you trade a chunk of money for a guaranteed annual income for the rest of your life.
Moira O’Neill
It’s a bit of a bet with the insurance company who you’re giving your pot of money to whether you’re going to survive and live a very long time or, unfortunately, die early. At the moment, you can get about 6.5 per cent rate on the standard annuity. Now, that would stay level throughout your whole retirement, and it might be eroded by inflation. Because if you want an annuity that keeps pace to inflation, then you pay extra for it. Most people buy the level annuities that just stay forever.
Claer Barrett
But our experts felt that for someone like Paul, buying an annuity could be a bad deal. He’s in the lucky position where he doesn’t need the certainty and could afford to be more flexible.
Adam Walkom
One of the biggest or most under-appreciated aspects of building a financial plan is to build in flexibility. And probably this is really why I don’t like annuities that much, because they . . . once you buy an annuity, that money is gone. It’s never coming back. And within your situation, you have the final salary pensions already. You should be receiving the state pension now. You’ve got rental income, which again is a diversified income stream. So you’ve already got these effectively inflation-linked income streams that are coming in. So to add on to that, another income stream at the expense of the flexibility of having a pot of money that is invested and growing at potentially and hopefully an above-inflation rate, I think actually is almost increasing the risk because you are really focusing on the specific goal of just producing income in your retirement. The best retirement strategies we see, where people have very different income streams from very different assets and very different pots of money.
Claer Barrett
One question you may well be pondering is why doesn’t Paul invest in the services of a financial adviser.
Paul
I had a financial adviser until I was about 50, and it just seemed to me that the adviser wasn’t moving the money around. I wasn’t really getting much value.
Claer Barrett
So did the experts think Paul was right to forgo paying for tailored investment advice?
Moira O’Neill
Depends how much you enjoy it and how much it stresses you out, basically. And you know, paying for the financial advice, sometimes the tax advice that you get as part of that planning can actually pay for the fees. So I think it is something to consider. But it sounds like Paul has actually been enjoying the satisfaction of managing his own money, and may continue doing that for some time to come.
Adam Walkom
Can I just . . . I think one of the — and obviously I’m totally biased here being a financial adviser — but one of the aspects that people misunderstand or don’t quite get with financial advice and what you’re actually paying for, but effectively a financial adviser is between you and a colossal mistake that you may at some point make. And no one ever thinks they’re going to make it, but some people do. And the whole point of a good financial planner or financial adviser is your barrier between you and that colossal mistake. It’s like insurance. It feels like it’s painful, but when it’s there, it’s absolutely there.
Claer Barrett
So, Paul, we’ve really enjoyed having you sitting in our Investment Clinic today. But tell us, what have you learned today and how do you think you’ll take things forward when you leave the studio and go back to your investing life?
Paul
Well, I think I’m reassured with those very nice comments, Adam, you made that I’d done a good job investing and that I dodged the bond market. I would rule out the annuity. I might look at that later. And I’d also rule out kind of the three-phased plan. I think I’ll look at the later plan for my later years, you know, maybe in five years’ time. Not really ready to get my head round that at the moment.
I do think, Moira, some of the suggestions you made about moving the funds, I definitely want to investigate that and I see that as a good antidote to move away from the US and the US tech market in particular. And I think also moving some into cash. I hadn’t thought to do that. And I think that’s a good idea.
Claer Barrett
Well, everybody needs a bit of cash to see them through troubled times. Well thank you so much for joining us today on Investment Clinic.
Paul
Well thank you, Claer, it has been really helpful.
Claer Barrett
And thanks very much for joining us, too, Adam Walkom from Permanent Wealth Partners . . .
Adam Walkom
Thank you, Claer.
Claer Barrett
. . . and Moira O’Neill, FT columnist.
Moira O’Neill
Thanks, Claer.
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Claer Barrett
So Paul leaves the Investment Clinic with some ideas about how he might prepare for the next phase of his life. On our next episode, I’ll be speaking to someone with rather less experience of investing — a woman in her late 40s who’s sitting on a pile of cash that has no idea how to invest it.
And how about you? If you would like to appear on the next series of my Investment Clinic and have the chance to chew the investment fat with a panel of experts, then get in touch. Our email address is [email protected] or follow me on TikTok or Instagram. I’m @ClaerB.
Finally, this podcast is intended as a general discussion about investment. It’s not intended as financial advice or any kind of investment recommendation. Everyone’s financial situation is different, and you should always do your own research before you make any investment decisions.
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Investment Clinic is produced by Mischa Frankl-Duval, with sound design and mixing by Breen Turner, Sam Giovinco and Joe Salcedo. Manuela Saragosa is the show’s executive producer, and Cheryl Brumley is the FT’s global head of audio.
