On Friday 6th of April, the new tax year arrived and brought with it a host of changes to the national minimum wage, personal allowances, council tax, car tax and more.
At evestor, we think the new tax year is also a great opportunity for investors to look forward and consider how to make the most of their pension and ISA allowances during the year ahead. This year, the ISA and Pension annual allowances have remained the same at £20,000 and up to £40,000 respectively (dependent on your salary).
Why it pays to plan
In the days leading up to the new tax year, the financial industry often experiences an influx of last minute contributions as investors rush to make their deposits before the deadline. This type of investment behaviour is common but leaving it to the last minute may not be what’s best for you or your investments!
Rather than making a last-minute lump sum deposit before the deadline, it may be worth considering making smart monthly contributions throughout the tax year instead.
‘Pound cost averaging’ highlights the benefits of monthly contributions on your investment performance. Regular contributions mean that some fund purchases will be made when the markets are up, and some when the markets are down, averaging out over time. This reduces the risk of trying to ‘time the market’ if you’re making a big one-off deposit.
Paying monthly contributions will also mean your cash could benefit from an extra year of potential growth and compounding!
There can be emotional benefits to investing on a monthly basis. As your monthly contribution would help rebalance your investment, you are less likely to see the spikes in investment returns which you may encounter when making a one-off investment. This may help reduce the emotional bias that can get in the way of effective and sensible investment decisions.1
Good preparation and sticking to a steady, long term, goal driven investment plan will help you avoid getting carried away with market hype, swayed by flashy end-of-tax-year deals or panicked by media scaremongering!
Keep more of your returns
Something we talk about a lot at evestor is the impact that advice and investment fees can have on the value of your investments over time.
Be sure to shop around and compare the costs of different platforms. Ongoing investment fees can vary from around 0.50% up to 2% or 3%! On top of that, if you’re receiving financial advice it can often come with upfront or additional costs.
For example, the cost of a traditional adviser averages out at 2.56% (according to a study by Grant Thornton, Aug 2016). Compare that with our fees of less than 0.53% annually and you could be £2,894 better off after 10 years on a one-off investment of £10,000*.
This doesn’t just apply to new investments; this could be a good opportunity to review your current investments to make sure you are getting the most out of them. We offer free transfer reviews that determine whether your current investments are working for you – we’ll only recommend transferring to us if it’s in your best interests.
Whatever your plan for making the most of your Pension and ISA allowances, the most important thing is that you feel comfortable and confident in the choices you make. If you’re not sure what’s best for you or don’t know where to start, you may want to consider getting financial advice.
We offer financial advice online, or you can speak to one of our expert financial advisers at no cost. Register now to get started.
*This calculation does not take into account growth or inflation which will impact the value of your investment, and the fees paid, over time.