Reasons to start the new tax year on the front foot


The two best years for the UK stockmarket over the past quarter of a century may come as a surprise.


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Counterintuitive as it may be, the strongest annual returns from investing in UK company shares came in the depths of the global financial crisis.

2009 – As the UK was only starting to emerge from its sharpest economic recession in decades, the FTSE All-Share index of UK-listed shares delivered total returns (being capital growth and income combined) of 30%.

1993 – In the wake of the earlier 1991-92 recession and Black Wednesday in September 1992, when the UK pound plunged after spectacularly falling out of the European exchange-rate mechanism, total returns from the FTSE All-Share index were 28%.

Holding your ground

It goes without saying that those investors who sold their holdings in a panic during these periods of economic turmoil would have missed out on the recoveries that followed.

This might seem obvious in hindsight, but the reality is that it can be tempting to cash out when investments have lost value. Of course, prices may continue to fall rather than rise, but there is always a risk that calling the market in this way means you sell when asset prices are at their lowest, leaving you permanently worse off.

Accepting the ups and downs is part and parcel of long-term investing. Rather than being ruffled by short-term volatility, sticking to your long-term plan is generally a better strategy than pulling all of your money off the market – or piling it all in, for that matter.

Sticking to a plan

Should you be drawing on your investments in retirement, for instance, you can reduce the chance you fall foul of market timing by selling holdings down gradually, and at regular intervals. Rather than risk selling up entirely when markets are in a slump, it makes more sense to stagger it. Helpfully, doing so can also provide you with a steady income.

The same principle applies, albeit in reverse, if you are building up your investment pot. By drip-feeding money into your chosen investments, it reduces the risk of pilling in when asset prices are peaking.

If you are happy to put some of your money at risk in the first place, committing to a regular investment plan – whether to top up or start a new investment – can also instil a good savings discipline.

Making the most of your ISA

Another good discipline is to make your investments as tax-efficient as they can be. One of the tools at your disposal is the stocks and shares Individual Savings Account, or ISA. 

Every April, you get a new allowance that gives each of us the opportunity to invest up to £20,000 through an ISA each tax year. The key attraction is that any capital gains and income generated by the investments you hold in your ISA will be free of personal income tax. Over the long term, this could make a terrific difference to your returns, especially if your investments perform well.

If you are looking to make use of your new ISA allowance, it is worth considering how starting investing early in the tax year can make a difference too. The simple reason is compounding – all other things being equal, the sooner money is invested, the longer it can work to deliver returns.

Since we know that trying to time the market is usually a fool’s errand, why not stick to a plan and start this new tax year on the front foot?

Please remember that past performance is not a guide to future performance. 

The value of the fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise and you may get back less than you originally invested.

Remember, we are unable to give financial advice and these views should not be taken as any kind of recommendation or forecast. If you are unsure about the suitability of any investment, speak to your financial adviser. 

Please remember too that ISA tax rules may change in the future. The tax advantages of investing through an ISA will also depend on your personal circumstances.