‘I might retire for health reasons. How should I invest £65k?’

I have £ 12,000 split between three funds in a stocks and shares Isa, as well as a self-invested personal pension (Sipp). Most of the funds are currently in the red for me.

I have £30,000 cash I would like to drip into my Sipp to get tax relief, but I need it to go into a fund or place that will cover inflation and where I can get it when I turn 55 without losses.

I am 53 years old with recently diagnosed health problems and may have to retire suddenly. What do you suggest?

Also is it true you can put up to £60,000 into a Sipp and get tax relief in a single year regardless of earnings?

– James

Dear James

I’m so sorry to hear about your diagnosed health problems, and wish you a speedy recovery. But it is a good idea to plan for the eventuality of having to retire early.

With the potential for your career to end before you reach retirement age, I agree that you should be focusing on finding inflation-topping investments.

Kicking off with your Isa, I like how you have chosen a geographically diversified mix of funds. While BlackRock Greater Europe Investment Trust has performed well in the past year, I can understand your frustrations that both Federated Hermes Global EM and Baillie Gifford Positive Change have not delivered for you.

I think your personal circumstances align with taking a low-risk investing approach. As such, I’d suggest switching out of your riskier global emerging markets fund. Instead, why not add something with greater stability, which adds diversification across asset classes, such as a bond fund?

Interest rates look to have peaked, so the negative run for bond prices is likely to be over. In the event of an economic downturn, bond prices could also rise, as investors turn to their secure income stream. A low-risk approach to the market is Vanguard Global Bond Index £ Hedged, which owns nearly 15,000 bonds from around the world and uses financial derivatives to hedge out currency changes.

In terms of your Sipp, I see you have a mix of funds, investment trusts and a couple of stocks. Your single stock holdings, Speedy Hire (£500) and Lloyds, have both struggled over the past year. If you feel strongly towards them then keep hold of them, of course. If not, I’d be tempted to cut your losses on these, to make your portfolio more streamlined. Lloyds would be my top pick of the two – it has a tempting dividend yield of around 6pc and came out as a winner in the latest earnings season across the UK banking sector. Moving on to your Sipp’s funds and investment trusts, I see you have two wealth preservation trusts – Personal Assets Trust and RIT Capital – which appear to suit your goals. But digging deeper, RIT Capital has struggled recently to deliver on its goal of preserving shareholders’ capital: shares have dropped 11pc in the past five years and are down about 35pc in two years. Looking at its asset allocation – 41pc in private equity and 27pc in quoted equity – does not fill me with confidence that this trust is right for your risk profile.

You could think about offloading this holding and recycling it into the Vanguard LifeStrategy 20% Equity fund instead, which should benefit from higher bond yields and steadier bond prices. With your £30k cash to deploy, you could add to Personal Assets Trust, which like Ruffer has a capital preservation goal and is packed with inflation- linked bonds to achieve this. Depending on your personal risk appetite, you could add to the Vanguard 60%

Equity or Vanguard 20% Equity, which are well diversified portfolios that therefore shouldn’t be too volatile. More equities suggest higher risk, but that is not always the case, as we saw last year when rising interest rates hammered bond prices.

Funds to look at include Royal London Short Term Money Market, L&G Cash Trust and Fidelity Cash. These funds are not without risk, and the Bank of England and Financial Conduct Authority have expressed concern that during a stock market panic there may be liquidity issues, but they offer a much steadier return than traditional stock and bond market funds.

Finally, you can contribute up to £60,000 each tax year to your pension, or 100pc of your income, whichever is lower. This limit is spread across all your pension schemes and pension contributions, including tax relief and any employer contributions.

Watch out though, because the £ 60,000 limit could be reduced if you are a very high earner with income over £200,000, or you have started to draw taxable income from your pension. If you haven’t used your annual allowance in previous tax years, you might be able to carry forward any unused allowance.