Considering liquidating investments in the cost of living crisis? Here’s what you should know

17 November 2022

The cost of living crisis has led to a number of changes in our lives, and it isn’t over yet.

Already, since December 2021, the Bank of England (BoE) has hiked the base rate eight times, bringing it to 3% in November 2022. 

Despite the BoE’s efforts, inflation rose to a 41-year high of 11.1% in October 2022, the Office for National Statistics (ONS) reports, reflecting the ever-increasing price of everyday goods and services.

No matter your financial situation, you may find the cost of living crisis worrying. Even if you know you have enough wealth to sustain your lifestyle, you might have found yourself searching for ways to create more disposable income over the coming months. 

One way you could consider boosting your income and covering costs is by liquidating some or all of the investments you hold. 

Indeed, the Shareholder Voice Report, published by Professional Adviser, found that of 2,000 adults surveyed in September 2022, 44% reported “cashing in their stocks in response to rising inflation and household bills”.

While releasing capital from investments might stave off worry in the cost of living crisis, it could have an impact on your financial stability later in life. 

Here’s what you should know about liquidating investments during the cost of living crisis. 

Cashing in your stocks could help you remain viable in an era of rising costs

Anyone living in the UK in 2022 can sympathise with the seemingly sudden rise in costs in multiple areas of our lives at once.

Indeed, between Ofgem’s energy price cap jumping by 80% between April and October, and the BoE’s base rate increasing eight times since December 2021, both your household bills and mortgage repayments could have increased drastically. 

What’s more, everyday expenditure – including food, fuel, domestic and abroad travel, and leisure activities – may all have increased in price too. 

In this instance, you may need to review your financial plan. If you were diligently tracking your expenditure and felt confident about your wealth in previous years, this confidence could be shaken by rising costs. 

So, like almost half of those surveyed in the Shareholder Voice Report, boosting your disposable funds by selling off investments could be a good route to consider in the short term. This move could help you stay out of debt, continue enjoying your lifestyle, and enable you to keep supporting loved ones while costs remain high.

Market volatility could make liquidating investments less lucrative

Although a beneficial short-term solution to the cost of living crisis, cashing in your stocks while the markets are volatile could mean you ultimately lose money – or earn meagre profits – on assets you hold. 

Indeed, as we have explored throughout the year in our market updates, global markets have witnessed downturns across almost all asset classes. 

The UK FTSE All-Share index dipped by 4.6% and 3.4% in Q2 and Q3 2022, respectively; the US S&P 500 dropped 20% and 4.9% in the same quarters.

So, if you sell a swathe of your assets while market values are low, you may essentially be turning a paper loss into an actual loss. You’ll also potentially lose any future profits when markets bounce back, as they trend towards growth over time.

In addition, encashing investments now might mean that you face a shortfall in later life. This may mean you have to compromise on some of your retirement plans.

Of course, your circumstances are unique. If you are considering selling assets and want to look over your portfolio, contact your financial planner today for an in-depth review.

Keeping investments long-term could grow your wealth and support you later in life. 

Ultimately, the key purpose of investing for most individuals is to grow their wealth over a long period of time. 

While short-term investing can be lucrative on some occasions, the chances of your investments yielding a profit are likely to increase the longer you hold that asset. 

Indeed, research from Nutmeg studied the stock market between January 1971 and July 2022. They found that if you held any investment for a single day within that period, your chances of a profit stood at 52.4% – almost as likely as tossing a coin.

However, if you invested for a full year within that period, your chances of growing your wealth jumped to 72.8%. Crucially, 10 years of investment gave you a 94.2% chance of turning a profit. 

So, while it is not unconscionable to liquidate investments to support your income during this difficult time, it could be wise to discuss this with your financial planner before you sell. 

We can help determine the long-term effects of this decision, and assist you in devising a strategy to maintain your wealth while costs remain high.

Get in touch

Want to use your investments to support you during the cost of living crisis? Check in with us first.  Email or call 0161 8080200.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

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