Today is the start of the new tax year, so this could be the best time to take advantage of one of the tax breaks available to you, by opening a Stocks and Shares ISA.
The end of the tax year is often referred to in the media as the ‘ISA season’, which gives the impression that March is the best time of year to open an ISA. However, this is not necessarily the case for several reasons.
It always makes sense to utilise all your tax allowances to the full, so opening an ISA at the start of each tax year means your investments are sheltered from tax straight away. The ISA allowance for 2020/21 remains at £20,000 a year, allowing every UK adult over the age of 18 to invest this amount and profit tax-free.
Time in the market is recognised as one of the fundamental tenets of good long-term investing practice, so Investing at the start of the tax year gives your money an extra 12 months to grow. The earlier you invest in ISAs in the tax year, the longer your investments can grow free of UK tax and this can have a major effect on investment performance.
Obviously, markets are particularly volatile at the moment, confirming the old adage that investments can go down as well as up. However, when you are investing for the long-term, there are ways to mitigate this.
For example, investing a regular sum of money each month means you will buy into shares or funds at different prices - diluting your exposure to a sudden fall in the market.
Over the course of a year this is likely to be beneficial, as some months you may pay more but in others, you will pay less for the assets you hold.
If you would like to start the new tax year off by taking advantage of your ISA allowance, talk to one of our financial advisers today.
Please be aware that the value of investments linked to the stock market and the income from them, may rise or fall depending on market conditions and that you may not always recoup your initial investment. In addition, past performance should not be seen as an indication of future returns.