Reassess your risk appetite and asset allocation

Retirement income after tax

"The income is necessary for us to live on and we also help our son, who has returned to live at home and requires financial help," says Robert. "In about five years' time our financial goals may change: we may take less income and grow the portfolio faster, to take into account things like long-term healthcare and a home for our son.

"In about two years we want to reorientate the portfolio more towards growth and aim for a total return of around 6 per cent. We have not been particularly optimistic investors, and see our risk profile as medium to low risk. We expect that in any given year we could lose money, but are very confident that in the long run our investments will make money and give us a decent income.

"We used to have a large amount of savings, but only have enough for emergencies now, as the interest is hardly worth having. So, when our savings go beyond £20,000 we invest these, adding to the portfolio when buying opportunities present themselves. We also own our home, which is worth around £300,000.

"We have been investing on and off for 40 years. Because our occupations as teachers were very demanding, we decided to let professional advisers and stockbrokers manage our investments. In nearly every case, they lost us money.

"When my mother died she left us quite a lot of money and we invested it in a reasonably high-income investment bond with Legal & General. This gave us the required 4 per cent income a year and didn't lose us any capital, but we achieved very little growth over a six-year period.

"But over the past two years the knowledge I have acquired through my reading and research has given me the confidence to manage our investments myself, and our portfolio generates a total return of well over 5 per cent.

"I have tried to construct a diversified portfolio so have put together an asset allocation based on those used by professionals, adapted to our own requirements, for example sufficient equity income.

"I feel comfortable with a holding being worth up to about £20,000 or about 5 per cent of the total. However some of the holdings are larger, for example, Artemis High Income (GB00BJT0KR04), TB Wise Income (GB00B0LJ0160) and Premier Multi-Asset Monthly Income (GB00B7GGPC79) because these are well diversified - in particular the latter two, which are multi-asset funds.

"Some of the funds are focused on the same areas as others in the portfolio in the hope that one may do better than the other, perhaps giving me the confidence in future to increase the size of individual holdings, but have fewer. I would find it easier to manage about 16 holdings in total.

"If I die before my wife she will need to take control of a portfolio that she can manage, and we are both in agreement that it would be preferable that she do this herself rather than engage professional help.

"Our last three trades were buying Fundsmith Equity (GB00B4MR8G82), TB Wise Income and Premier Multi-Asset Monthly Income. These were funded by selling Merchants Trust (MRCH).

"I am thinking of investing in UK Smaller Companies funds such as Chelverton Small Companies Dividend Trust (SDV) and Invesco Perpetual UK Smaller Companies Investment Trust (IPU).

"And although I primarily invest in active funds, I also use exchange traded funds (ETFs) where these seem more appropriate."

Robert and Elizabeth's portfolio

THE BIG PICTURE

Chris Dillow, Investors Chronicle's economist, says:

You consider yourselves low- to medium-risk investors yet have very little cash. In one respect this makes sense because you have huge amounts of a low-risk asset - your workplace and state pensions. Your high weighting to this form of safe asset could embolden you to take risk.

In another sense, though, it doesn't make sense. There's a risk that all major financial assets will fall over the next few years. For example, a greater than expected pick-up in US inflation might trigger bigger rises in interest rates than investors expect, to the detriment of both bonds and equities. And anything that depresses growth while raising inflation could have the same effect: a trade war in response to Trump's protectionism is one possibility here.

These are only risks, but if they materialise the virtue of cash as a safe haven will become obvious. Although the interest on cash is negligible, the capital is well worth having.

James Norrington, specialist writer at Investors Chronicle, says:

This portfolio is heavily concentrated in equities so, if looked at in isolation, the asset allocation is not balanced. If, however, we consider that you own your home outright, hold up to £20,000 in cash, and have a secure income guaranteed from your state and occupational pensions, then overall your wealth is well diversified.

So with three-quarters of your income requirements met outside the portfolio you have the capacity to bear the risk of holding so many equity investments. But make sure you are aware of what those risks are.

If you are basing what you might lose on just the past three years then you might be psychologically unprepared if global equities suffer a terrible downturn as they did between 2007 and 2009, when MSCI World index lost 54 per cent of its value.

This is not meant to discourage you, but rather help you set realistic expectations. In your case, with no immediate need to redeem funds and crystallise capital losses, you could probably weather a bear market and wait for the recovery. But you have to ask yourself: are you mentally prepared to sit tight and ride out the rough times?

If the answer is yes, then there is probably no need to massively alter your approach. There is a risk that in a recession some of the companies your funds hold will slash dividends, but the hard job of managing yield is being done for you by the funds' managers. And as you are currently earning more than your minimum requirements from the portfolio you have some leeway if the funds go through periods where they disappoint in terms of income.

A target of 6 per cent net total return is achievable with this portfolio. If you are already meeting most of the target and have spare income, then reinvest more dividends to allow compounding to ratchet up overall returns. This might be more appropriate for you than going for more growth. With your eventual focus on money to fund long-term care and help your son, any adjustments to strategy as you get older should be to reduce risk and protect capital, rather than add to risk and aim for growth.

This portfolio has a good spread of international exposures, and you have some investments focused on themes such as infrastructure and commercial property.

A sizeable body of research suggests that passive funds focused on US equities outperform active ones focused on these. But this assertion is less clear-cut with other markets, so there is no problem using active funds if they fit a coherent investment policy.

However, if you just want exposure to a particular region passive funds such as ETFs may be more cost-effective. Managing the overall portfolio strategy is crucial in terms of getting your money's worth out of active managers. If you don't have a clear focus and end up blending diverse value, growth and income strategies, then overall you could save yourself fees by just buying a tracker.

HOW TO IMPROVE THE PORTFOLIO

Chris Dillow says:

Your intention to shift from income to growth needs scrutiny, as I think the distinction between the two is largely bogus. It doesn't matter whether an asset offers income or growth, but rather if it is underpriced or not. History warns us that investors have on average paid too much for growth - not least because growth stocks haven't delivered as much growth as expected.

Decent-yielding defensives have often been underpriced, in part because investors have wrongly under-estimated their growth potential. And your holding in Premier Monthly Income (GB0003886875) gives you exposure to these.

Your interest in UK small-cap funds is dubious, as adding these is taking on cyclical risk. This should pay off if the economy continues to grow nicely, but there's a risk that at current levels investors might be underestimating the danger of a noticeable slowdown. For example, I'm a little discomforted by the fact that domestic stocks have so far largely ignored the recent drop in retail sales.

In holding so many funds you're incurring high fees. Some of your funds, such as Fundsmith Equity and Unicorn UK Income (GB00B00Z1R87), are run by genuine stockpickers. You might think it's worth paying for their managers' expertise. However, if you hold lots of stockpicking funds you dilute the effect of individual holdings' performance on the overall portfolio's return. This can leave you paying the fees of active funds without their outperformance having much influence on your overall portfolio's return. And over the long run even one extra percentage point in fees compounds horribly.

I would, therefore, be very wary of adding more active funds to this portfolio and instead indulge your liking for ETFs a little more. Think of a global equity ETF as being the ultimate collective fund. It is in effect a fund of all equity funds, but the big difference is that it doesn't charge such high fees as funds of funds.

A global equity ETF should be the default equity investment, and you should only add higher-charging active funds if they are offering something that it doesn't.

Gavin Haynes, managing director at Whitechurch Securities, says:

You describe your attitude to risk as "medium to low", but I would categorise this portfolio as higher risk, given that around 75 per cent is invested in equities and close to half is invested in overseas assets that incur currency risk. It is important to take into account the extent that returns in overseas holdings have been significantly magnified by the weakness of the pound since the EU referendum, and if this reverses it will damage the value of such holdings.

Also, asset prices have risen significantly across the board since the global financial crisis, so it is important not to be complacent based on past performance over this period. It is a good exercise to stress-test a portfolio to ensure that when markets suffer a period of negative returns you can accept the effect this will have on your wealth.

For a balanced investor we typically have an upper limit of 60 per cent in equities. If you want to dampen volatility and maintain income you could add specialist bond funds such as Twenty Four Dynamic Bond (GB00B57TXN82) or Jupiter Strategic Bond (GB00B544HM32), or income-producing absolute-return funds such as Aviva Investors Multi-Strategy Target Income (GB00BQSBPF62) or Invesco Perpetual Global Targeted Income (GB00BZB27K80).

But if you are happy with the high equity content and currency risk, then this portfolio seems well diversified via your 21 funds. We manage portfolios for clients worth well over £1m using this number of funds. This is a well-structured, equities focused, income and growth portfolio producing a yield in excess of 4 per cent, which is attractive given the low rate environment. And the high equity content provides the potential to supplement the income through long-term growth.

I applaud your mix of passive and active funds - I always look at the low-cost passive solution first and only pay extra fees for an active manager if I have a good degree of confidence that they can outperform.

However, the infrastructure trusts have had a strong run and trade on significant premiums to net asset value, which need to be monitored.

You say you want to increase exposure to UK smaller companies, but you already have 10 per cent of the portfolio in this area via your holdings in MI Chelverton UK Equity Income (GB00B1FD6467) and Unicorn UK Income.