Stocks And Shares ISAs – When To SellWritten on September 26, 2018 by Sarah Newell
Financial Services QuestionsThe Question:
Most of our money is invested in Stocks & Shares ISAs. We have been investing for a long time and the values have increased well; the value in May was especially pleasing, the best it has ever been. We were planning to take some money out to pay for home improvements but recently the value has fallen, and we are reluctant to take it at this time. We have put it off for nearly a month now and would be interested in your views; should we wait some more or just get on with it?
Sarah Newell answers:
The following example is one I often use during client meetings. Let’s say I invested £100,000 for a client, and 7 years later it is worth £200,000 (an example, not a promise of returns). At that point the client is probably very happy, after all they are showing a healthy profit, equal to a return of 9.94%pa (again not a promise; sorry to belabour the point). A year later they sell the investment and the value is £180,000. They have made £80,000, a healthy profit equal to 7.37%pa. But the client will think they have lost £20,000. I say client, if it was my money I would probably feel the same.
When it comes to investments most of us will judge them on the best value they have ever had and anything else will seem like a loss. We often see this with shares, investors want to sell, but will hold on to them waiting for them to get back to a previous high. This is of course the position you now find yourselves in; the value since May has dropped and understandably you are reluctant to sell until it has recovered. What should you do? I do not know enough about your circumstances to advice, but would raise the following points. You could continue to wait, but to a certain extent this depends on how soon you need the money. If you can put off the home improvements waiting may pay off. The value will eventually recover, but when is any ones guess; it may be a matter of weeks, months or it could be a year or more. The risk of waiting is the value may fall further and you cannot wait any longer to take money out. There could be an argument for waiting as we often (but not always) see investments rally towards the end of the year.
Alternatively, if you can take on board my earlier comments selling now will mean doing so when the value is lower than the best it has ever been, but I suspect you would still realise a profit. Taking the money needed removes the worry of further falls, but you would equally still have the remaining money invested if the value went up; in effect hedging your bets. To me risk management should comprise the following; investing within your attitude to risk. Retaining money on deposit to cover emergencies and shorter term expected expenditure. Finally, thinking ahead as to when you are likely to need money from the investments. If you know you are going to need money from an investment in a year or so taking it sooner rather than later may be advisable.
Going back to my earlier example; if the client had said to me at the 7-year point they would need the money a year later I possibly would have advised them to take it then given the healthy profit. We certainly would have had a conversation about the pros & cons.
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Any reader interested in discussing whether and when to sell their stocks and shares ISA’s further can telephone Peter Sharratt on 01344 875000 or email info@kirkrice.co.uk.
Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made. The FCA does not regulate tax and trust advice.
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