Sipp is the icing on the cake

"Consequently I have no current need to take the maximum drawdown income from my self-invested personal pension (Sipp). It may be some considerable time before I increase the level of income I am drawing. I am not likely to purchase a pension annuity in the foreseeable future because rates are poor - I like the idea of retaining control of my capital and I enjoy managing the fund.

"My Sipp was created quite recently, the bulk of it coming from a stakeholder pension transferred in 2011. All investments have been made since then, mostly in 2012 and 2013.

"My investment approach is to try to diversify and to contain costs. I review my stocks a few times a year, but think twice before making changes. Usually I invest £5,000 a time - a worthwhile stake and the commission cost is a small proportion of the total.

"I would appreciate comments about my existing investments, and suggestions for further ventures as cash currently forms 26 per cent of the total fund. This is the result of my taking profits on various pooled funds. I want to increase the value of my Sipp by a combination of capital growth and reinvested income. I have no particular return expectation; I realise that I need to take some risk to stand a chance of achieving my objective.

"Although I intend to purchase more income-yielding shares I want to wait until the market presents better value.

My most recent purchases were items db X-trackers Stoxx Global Select Dividend 100 (XGSD), Murray International Trust (MYI), Standard Life Global Absolute Return Strategies (GB00B28S0093) and World Wide Healthcare Trust (WWH). These all have a global remit - I prefer not to invest in specific regions beyond the UK. I purchased db X-trackers Stoxx Global Select Dividend 100 and Murray International Trust simultaneously. Although they are both global investments they have different mandates. One is focused on the highest dividends ignoring market capitalisations, while the other is an active fund. It will be interesting to see their relative performances over time.

"A recent sale has been Royal London Corporate Bond Fund, at a profit.

"When I do invest my cash I may purchase more UK shares with well-covered yields. I know these will result in some duplication of my holdings in pooled funds, but increasingly I prefer to select my own shares. If I invest all of the cash in UK shares I will then have about 40 per cent of the total value of my Sipp in UK equity, plus the UK element of global funds.

"My setbacks with the commodities and natural resources funds make me wary of more speculative areas. But I will retain these holdings as they could be fruitful eventually. I will continue to hold RPS for its progressive dividend policy and recovery potential. I like to think that my Sipp will increase in value and generate more income, which I can begin to take when needed. The income from my pension annuities is fixed so their real value will diminish with inflation.

"At 28 June these investments were worth £111,584. I have been selling pooled funds to take profits, hence the high level of cash shown in the table.

"I am drawing income of £3,000 a year, well within the natural yield of £4,886. The income yield is the annual amount receivable expressed as a percentage of the original cost, including charges. Reminding myself of costs discourages me from trading too frequently."

Danny Cox, head of financial planning at Hargreaves Lansdown, says:

The theory behind an income drawdown portfolio is to derive sufficient investment return to cover the income being taken, the charges and to ensure there is a sufficient pot available to buy an annuity at least as good as the annuity you could have bought at the outset.

Drawing no more than the natural yield is a very sensible way to manage an income drawdown arrangement. Spending more than the natural yield involves spending capital, which exacerbates risk in falling markets. With your state pension imminent, if you don't need your drawdown income you should consider stopping the income and reinvesting it to promote growth.

Your portfolio should be designed to at least meet the critical yield - the rate of return required to nominally purchase an annuity of the same income you might have purchased at outset - taking into account the amount of risk you wish to take and the timescale of investment. Critical yields take into account the income taken and charges on the plan, and are typically between 5 and 6 per cent a year.

You rightly admit that your cash balances are high, and this will drag down both performance and the potential to hit your critical yield figure. That said, it does protect you on the downside, although for a long-term portfolio of potentially 10 years or more, you should keep your cash balances to no more than two years' income plus fees, with the natural yield topping this up annually.

In terms of broader asset allocation, the equity content is light, and a typical income drawdown portfolio would be nearer 60 per cent equity, 30 per cent bonds/property and 10 per cent cash. You have some decent diversification without excess numbers of stocks.

As with many portfolios at the moment, there is little exposure to Europe ex-UK, yet valuations are cheap and the long-term prospects good. For low-cost exposure you could consider an exchange traded fund (ETF) such as db X-trackers Euro Stoxx 50 ETF (XESX) which has a 0 per cent total expense ratio (TER), although is synthetic. My preference would be an active fund such as Jupiter European Special Situations (GB0004911540) on the pay-more-get-more principle.

Standard Life GARS (GB00B28S0093) has recently lost a large part of its fund management team so take a watching brief on whether to retain this fund.

There will also be a time to reduce your bond exposure, but we aren't there yet.

Lee Robertson, chief executive officer of wealth adviser Investment Quorum, says:

You are in the enviable position of having this Sipp portfolio as the icing on the cake for your retirement planning, meaning you can defer taking income and continue over the medium to long term with a capital growth strategy. While I am broadly supportive of the composition of the portfolio and like the asset allocation, I have a few suggestions for achieving your stated aims.

This portfolio has some really interesting investments giving both growth and income, split across collective funds and individual stocks. However, I suggest that you consider some changes to the portfolio prior to investing the cash.

You should consider selling JP Morgan Natural Resources Fund (GB0031835118) given that you also have BlackRock Commodities Income Trust (BRCI), yielding 5.1 per cent. We also feel that commodities are suffering from supply over demand issues given the downturn in the Chinese economy. It has largely been Chinese infrastructure building demand that has driven commodities prices, and with the reported slowdown in the pace of the infrastructure building programme this has meant a fall in commodities returns.

I see little value in you continuing to hold Standard Life Global Absolute Return Strategies Fund, which has recently lost its management team, given your ability to add risk to the portfolio to deliver your objectives and harvest further income from long-only strategies.

And there are better performing UK equity income funds than Psigma Income Fund (GB00B1RQN640).

Therefore, I would sell all three and switch the proceeds equally into the following:

■ Cazenove UK Equity Income Fund (GB00B073JG03), managed by Matt Hudson, which is ranked first quartile over one, three and five years.

■ CF Lindsell Train UK Equity Fund (GB00B18B9V52), managed by Nick Train, once again a first-quartile-ranked fund over all time periods.

■ Old Mutual Monthly Income Bond Fund (GB00B1XG7114) to add further income opportunity to the portfolio.

In terms of the cash position, I would put £20,000 of this to work immediately on a long-term view, leaving around £18,500 in cash pending further opportunities. Therefore you could consider investing tranches of £5,000 into IC Top 100 Funds M&G Global Dividend (GB00B6VRX242), managed by Stuart Rhodes and Fundsmith Equity Fund (GB00B4QBRK32), managed by investment veteran Terry Smith, as well as Schroder Global Property Income Maximiser Fund (GB00B52V9F34), yielding 7 per cent, and iShares UK Dividend UCITS ETF (IUKD) which is a cheap way into the highest yielding UK equity shares.

With these changes the portfolio would be fairly well diversified with a tilt towards growth and income, which would possibly increase your monthly income distributions in the future.

We prefer the fund approach over direct equities because having a very small number of stocks can have a very detrimental effect on your overall wealth, if one or more of the companies announce a profit warning, or even worse goes into liquidation.

Ian Kent's Sipp portfolio

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db X-trackers Stoxx Global Select Dividend 100 (XGSD)

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Standard Life Global Absolute Return Strategies (GB00B28S0093)

World Wide Healthcare Trust (WWH)

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