Make the most of the new tax year

It doesn’t have to be this way. There are good reasons not to succumb to the last-minute rush – not least because decisions made in haste are often regretted. Indeed, investing early in the tax year, rather than in its death throes, makes sound financial sense.

The first point is that in a rising market, which is what investors hope for over time, the longer your money is invested, the better the long-term return will be. The laws of compound interest have a huge impact – and if you use your Isa allowance on 6 April, the first day of the tax year, rather than waiting until the following 5 April, the last day of the tax year, your money is working for you for almost an extra year.

Data from asset manager Vanguard underlines the point. Invest £20,000 on 6 April 2025, and an additional £20,000 on the first day of each subsequent tax year, and you could end up with a fund worth £1,079,320 after 25 years, assuming 5.5% annual growth. Make exactly the same investments, but on the final day of each tax year, and you’d end up with £1,023,052 – that’s a shortfall of more than £56,000.

The second advantage of investing right from the beginning of each tax year is that you have time to spread your ISA contributions across 12 months using a regular savings plan. For investors who don’t have a lump sum large enough to take advantage of the full £20,000 ISA in one go, this may be a useful way to avoid missing out on the opportunity to maximise their use of ISAs.

Moreover, regular savings plans, which drip-feed your money into the market each month, offer a potentially valuable advantage known as pound-cost averaging. This can be especially compelling during periods of stock market volatility – such as the bout of turbulence currently hitting share prices in the wake of President Trump’s announcements on tariffs.

Pound-cost averaging works because when markets are falling, your fixed monthly contribution buys more shares in your chosen fund, enabling you to take advantage of the dip.

To see how this works, imagine investing £20,000 at the beginning of the year in an investment trust where shares cost £4 each – you’d have 5,000 shares.

Now, imagine instead that you invest your £20,000 in 12 monthly instalments of just under £1,667. In the first month, you buy 417 shares, but by the second month, the share price has fallen to £3.50 and your money buys you 476 shares in the fund. A smaller proportion of your money than with a lump sum is affected by the dip in value plus you get the chance to buy more shares at a lower price that will benefit from a recovery.

At the end of the year, depending on how the price moves, you may end up with more investment trust shares than the lump sum would have got you, as well as growth on your capital even during a period of flat performance. Pound-cost averaging doesn’t always work this way, but it can be a great way to smooth out the peaks and troughs of markets. Right now, that feels pretty appealing.

Investment trusts have a long association with regular savings. In the past, many trusts ran regular savings schemes of their own. These days, you can use investment platforms to drip feed money into your chosen fund.