For some people, the end of the tax year might mean a rush to put the rest of their £20,000 allowance into their ISA.
For most of us saving more modest amounts though, that upper limit is less of a worry.
But regardless of where you fall on the saver spectrum, from beginner to ISA millionaire, there are a few reasons why not leaving it until next March to put money into this year’s ISA can help.
Here are a few tips on making the most of your stocks and shares ISA this year and how to consider which investments you put in it.
If you’re looking for a bit more info on the ISA basics, have a read of our guide to individual savings accounts.
Whether you managed to fill up the rest of your ISA last week or not, today puts everyone back to the same level, with a new £20,000 ISA allowance for the next 12 months.
If you’re lucky enough to be able to put that all in now, it could help you over the long term for the simple reason that time helps investments.
Giving your UK and US company shares more time to grow, gather dividends and begin that compounding effect is the basis of all good investing, and if you can give your money a year’s head start, its opportunity to grow is enhanced too.
But even if you can’t stump up £20,000 today, using the start of the new tax year to plan your regular investments until next April can be extremely useful.
Most of us want to add to our investments monthly, after we’ve been paid, and it’s a good habit to get into.
Investing at regular intervals means you’ll naturally catch both high and low points in the market. The result is that your investment returns should sit somewhere in between over the long haul.
Being a steady investor has the added advantage of taking the emotion out of it all. If you’re scheming and plotting the best time to finally leap into the market you might find you’re on the side lines for a lot longer than you anticipated.
Catching the dips is an incredibly difficult job at the best of times and what if you miss the drop? You’ll have shunned all that dividend compounding with not much else to show for it.
The time your assets spend in the market should outweigh your desire to time the market. It’s an old guiding principle but, given how many people still choose to learn the hard way, it’s worth repeating.
Something else worth reiterating is just how abnormal a year 2020 was. It’s true that there’s always something shaking markets but last year’s drop in March and path back since were the most dramatic a lot of investors, especially newcomers, will have seen since 2008.
While we never know what’s going to happen in the future, we shouldn’t expect the performance figures to be just as big every year, positive or negative.
But what can sometimes happen after an exciting phase or period of big returns is we get frustrated at the lack of drama-fuelled share price hikes, as normality resumes. This can drive short-term behaviour as we constantly look for assets we hope will replicate the jumps we saw in parts of the market last year.
There are a few dangers here. One is that there’s often a complete disregard for our own investment principles when we make rash decisions. Ignoring what should be a multi-year strategy because you get itchy fingers on a random Tuesday afternoon is not good investing.
The second danger is just that - you get sucked into trading in and out of assets, chopping off gains and constantly looking for something else to get into quickly.
There’s a reason some of the best professional investors don’t actually invest that much. If you identify quality companies with strong management and a proven ability to make money whatever the weather, why jump out and look for something else?
What’s more, that new investment is going to have to be a lot better than the current one, otherwise you’ll realise you should have just stayed put.
If you do find yourself wanting to trade, channel that energy into improving your portfolio’s diversification. You’ll be able to put the work into identifying possible additions to the portfolio and it will hopefully help you avoid penalising the rest of your assets already making steady progress in the background.
Our last bit of guidance is to make sure your sights are well and truly on your own long-term investment journey.
It has never been easier to succumb to the myopic effects of 24-hour news and constant phone alerts but do your best to fight it.
In investment terms, that might mean identifying broad thematic changes to our world from a top-down lens, and then working to fulfil those theories by bottom-up stock selection.
An illustrative example of this in the past has been the assertion that China’s middle class would grow as the country grew richer. A lot of emerging market investors explored this theme through luxury brands appealing to newly wealthy parts of the population, and products like insurance or telecoms, which can become more important to companies and families as wealth levels rise.
This isn’t a recommendation to follow this exact line of thought or to buy or sell securities connected to the theme.
But it does serve to show how expanding our view and employing much longer-term thinking can help us decide what to invest in now. Crucially, having that theme in mind can make us pause before we sell out of an idea on a short-term whim.
And this unveils the real truth about investing. You don’t necessarily make money selling a quality asset, you make money owning it. The longer you give dividends from good quality assets time to snowball, the more chance you have of racking up long-term gains.