Cash clinic: Attitude to risk is crucial factor in plans for future

Q I have a retirement fund of about 80,000.I am fairly risk averse and unlikely to gamble with this sum but ideally I would like some growth from it to add to the monthly income I get, although I understand that may take many years.Any suggestions?

DH, Fife

A I assume that by retirement fund you are referring to savings you have in addition to your existing pension provisions. You have made it clear that you wish not to "gamble" your money, but this provides little guidance as to the level of risk you would be willing to accept. The definition of risk is one that varies widely.

Typically, we ask our clients a series of questions, upon which we determine an outline attitude to risk. A follow-up discussion will finalise the assessment and produce an agreed risk tolerance.

On the assumption that you are prepared to invest your savings to yield an income, risk is ultimately reflected in the asset allocation of your portfolio. The asset allocation is usually depicted as a pie chart showing the underlying investment split of your portfolio - asset classes such as fixed income, property, equities, and geographical sectors.

The aim will be to achieve the best rate of return that is commensurate with the agreed attitude to investment risk.

To work out how best to achieve your stated objective we would consider the full spectrum of possible savings and investments ranging from bank deposits, to a portfolio of mutual funds, investment bonds and perhaps structured products. In order to determine which would be the most suitable savings/investment structure, it is essential to establish your personal circumstances and existing estate, your current tax position, the level of access and/or desire to tie up the capital and the investment time horizon.

A portfolio for a cautious investor will typically use high yielding cash, government gilts and fixed interest as well as equity investments that will be slanted towards blue-chip companies. All of these components produce a "natural" income by way of interest, coupons and dividends.

As with any investment strategy, we would advise that you hold the investments as tax efficiently as possible. We would advise you to utilise the maximum individual savings account (Isa) amount (10,200 for 2010-11). In the event that you are married, it may be tax-efficient to hold investments in your wife's name.

• Christian Poziemski is a wealth manager in the private client and financial services division of HBJ Gateley Wareing.

• If you have a question, write to Jeff Salway, The Scotsman, 108 Holyrood Road, Edinburgh EH8 8AS or e-mail: [email protected]. The above is for general purposes only and is not tailored for individual use. It does not constitute legal, financial or investment advice on any particular matter and must not be treated as a substitute for specific advice. No action should be taken in reliance of the information given. The Scotsman Publications Ltd and HBJ Gateley Wareing accept no liability on the basis of this article.