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Why I’ve liquidated half of my ISA

24 June 2022

Editor Jonathan Jones explains why he has moved to cash despite low asset prices and rising inflation.

By Jonathan Jones,

Editor, Trustnet

It was another week of doom and gloom as UK inflation nudged up to 9.1%, exacerbating the cost-of-living crisis that is being felt across the country.

The consumer price index (CPI) is now at a 40-year high, but the Bank of England predicts inflation will get worse before it gets better, peaking at around 11% in October when the energy price cap is removed.

Some analysts believe that this will bring about a recession or leave the country flirting dangerously close to the line at the very least.

Annabelle Williams, personal finance specialist at Nutmeg, said: “It’s too soon to call definitively whether there will be a recession in the UK this year, but the ducks are getting into a row. The economy may begin to teeter on the edge of a recession by the end of the summer.”

The problem for investors is working out how to allocate their money with this in mind. As such, this week we covered a number of high-profile funds.

Analysts at Investec were positive on Monks investment trust, which has dropped 40% since its highs in 2021, saying it remained a “core” option for investors – unlike its stablemate Scottish Mortgage, which they downgraded last week.

Speaking of what was previously the UK’s largest investment trust, Scottish Mortgage was in the news again this week as Brewin Dolphin’s Rob Burgeman said it may have a private equity problem.

I won’t go into detail here, but in short, the trust is up against its self-imposed limit on unlisted companies, so may struggle to pump more money in when the begging bowl is inevitably passed around and these businesses ask for more cash to survive.

Another fund having a tough time of it is Fundsmith Equity – the UK’s largest fund is in danger of failing to beat its average peer for the first time in a calendar year since launching (gasp).

It is down 21.3% so far in 2022, 5.1 percentage points below the IA Global sector. Analysts were unanimous that long-term investors should hold on, pointing out that selling now would mean crystalising losses at these levels.

However, if you think inflation will remain high in the long run, its performance could continue to suffer, according to Darius McDermott, managing director of Chelsea Financial Services.

Conversely, if you’re of the view that these conditions won’t last forever, or that the market is already pricing in the worst, you could even make an argument for buying more.

I will sign this week off by noting that while the suggestions of whether to buy, hold or sell are valid, a lot will come down to personal circumstances, particularly in this difficult time.

I have liquidated more than half of my ISA portfolio, which I have been accruing (incredibly slowly) for more than a decade.

My wife and I are expecting our first born in August, a wonderful – but also horrifically expensive – time. By all accounts, selling now is likely to be one of the worst things an investor can do, but it is also a necessity for me.

I won’t let sequencing risk stop me from being able to afford all the things I need, even if I’ve probably lost out in the long term. Financial theory is great, just don’t forget that sometimes real-world problems require real-world solutions.

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