DIY Investor Diary: how I turned a windfall into early retirement

“Time in the market” is a valuable saying for investors – warning them to stay the course but also to get started as soon as possible.

That latter point can be especially relevant, given the power of compounding over the long term.

But even late bloomers can have success on the investment front – especially if they receive a cash boost with which to kick start a portfolio, and if they then take a keen interest in markets.

That has been the case for one ii customer, who is currently 53 but has only been investing for around five years and now hopes to retire early on the back of his substantial recent gains.

His case, while unusual, might inspire those investors who didn’t get started as early as they might hope.

A windfall turned portfolio

In earlier years the customer spent some years working for Ford and then for RBS, and as he put it was “lucky to get final salary pensions” from both. 

That gave him roughly 15 years’ worth of final salary pension.

This individual was not especially educated about, or interested in, pensions or investments for some time.

However events took a fortuitous turn: transfer out rates for defined benefit pensions spiked in the pandemic, and an acquaintance who worked as a financial adviser made the case for taking advantage of this.

“My wife’s friend, her husband started doing pension transfers as an independent financial adviser. We were out for a beer and he spoke about what he did,” the customer says.

“The transfer values were outstanding. He set up a consultation. I took two years to decide whether to transfer. I went through the process of transferring out. Then, later, I transferred my wife’s out too.”

That began the individual’s journey to becoming a more experienced investor.

He put £520,000 into a self-invested personal pension (SIPP) and ultimately started picking funds.

Having at first left the portfolio in the hands of a financial adviser, he started to wonder if he could beat the adviser’s target returns of 5% to 10%.

Very recently, buoyant markets have helped the individual to “handsomely” beat his former adviser’s old record.

What’s in the portfolio?

The individual and his wife now have around £1.75 million in workplace pensions and SIPPs, with the bulk of that displayed in the table below.

Having started to research investing (in part by reading ii’s editorial coverage), the customer looked to build a diversified portfolio.

He sought to have 80% of his portfolio in equity exposure, with the balance in bonds, and liked income funds. 

That has resulted in the combination of investments listed in the table.

Any dividends received currently from holding go into UK government T-bills (very short-dated bonds), on a yield of 4%, until the individual decides what to do with the cash.

He also holds two shares directly, in Standard Life (LSE:SDLF) and in SSE (LSE:SSE).

As the table shows the portfolio includes income funds across a variety of areas, from multi-asset offering Artemis Monthly Distribution to UK funds Artemis Income, Man Income and Vanguard FTSE UK Equity Income.

On the global income front we have Fidelity Global Dividend and Vanguard FTSE All World High Dividend Yield, while Guinness Asian Income also sits in the table.

He meanwhile has the popular cash-like fund Royal London Short Term Money Market, plus bond portfolios Royal London Global Bond Opportunities and Jupiter Strategic Bond.

And he has invested a tiny amount into UK gilts (separately to the T bills), with a mind to potentially have more in future.

The constituents of the workplace pension are JPMorgan Emerging Markets, Baillie Gifford UK Equity Core Growth and Baillie Gifford International, with the individual seeing the former as a source of diversification for his overall portfolio.

A success?

While the customer wishes he had started investing early, he views his experience as a success.

Given that he turns 55 in December 2027 he will put the SIPP into drawdown then, so as to get around an approaching rise in the age at which one can do so (with the age to access private pensions rising to 57 in 2028). 

That will likely prompt him to enter retirement.

“I’ve come from being an absolute amateur who didn’t understand what a pension was…….to being so confident that I likely have 12 to 15 months of working left before retiring,” he says. “I’m very pleased.”

As readers who have retired will know, the journey doesn’t stop here. 

The reader will have to decide, for example, whether he wants to de-risk the portfolio once he enters retirement.

On this front he has mulled the prospect using some of his portfolio assets to buy an annuity and is keen to take some profits on his emerging markets fund, given that it has generated huge returns and now represents such a big position.

But beyond that he is keen to see if stock markets get another bump, especially if we see an end to the current conflict in both the Middle East and the Ukraine.

“I want to see whether Trump can get peace,” he says. 

“If Ukraine and Iran gets solved we could see a big rise in markets – if the oil prices comes down on peace we get a general boost to the economy.”

He also wonders about whether to call time on his bond funds, given that the asset class could continue to sell off amid a fresh wave of interest rate rises. 

But he feels calm on this front for now, given that his funds here are flat overall in performance terms.

Finally he does check the pension every day, and notes that a portfolio this size can see falls (or gains) of £20,000 or £30,000 in a single day.

That has taught him to stay disciplined and stay invested even among big moves. 

But he’s keen to engage in the “intellectual challenge” of questioning his investment rationales – and not to become “stale”.

With markets at all-time highs even as global uncertainty persists, it remains a confusing time for investors. 

But this individual has so far had a rewarding experience of managing his investments.