When it comes to investing, there’s no doubt the early bird catches the worm. And women, it seems, are all over this, with new research from Hargreaves Lansdown showing 26% saying they’re likely to be inspired to get cracking by the start of the new tax year. After all, April 6 comes with a fresh individual savings account (ISA) allowance for savers to utilise.
Further research reveals it is ‘female breadwinners,’ women aged 55 and older, and ‘seasoned female investors’ who are among the keenest early birds. But what exactly are the benefits of using allowances early?
The benefits
For starters, there’s an extra year of protection from tax. This year it makes even more sense than usual to hold investments in an individual savings account (ISA) given the new tax year brings particularly unwelcome news for investors. By doing so, you won’t have to worry about the fact that the dividend tax allowance has been halved to £500, and the amount that investors can crystallise tax-free down from £12,300 in the 2022-23 tax year, to just £3,000.
Sarah Coles from Hargreaves Lansdown, said: “By investing early, your dividends and gains are protected from day one.“ This is a view shared by Jason Hollands from Bestinvest. He said: “As the saying goes ‘the early bird catches the worm,’ and those in a position to use their new ISA now – rather than wait until the end of the tax year – should strongly consider doing so. Not only does investing earlier in the tax year remove some of the pressure to make a hasty decision; it also means your hard-earned cash will be put to work for longer.”
Money available can be lumpier
At the same time, another reason why women may want to act at the start of a tax year is because the money they have to invest can often be more ‘lumpy.’ You might, for example, have cash from a divorce settlement, tax-free cash from a pension, or an inheritance.
If you received more than £20,000, you may have maxed out your ISA allowance straight away, and then done so again as soon as you could at the start of each new tax year until your money was protected.
Hargreaves added: “Women with a big sum might have started by investing the excess money outside an ISA. Each new tax year gives them the opportunity to sell up some of their assets and reinvest inside an ISA in order to protect another £20,000 from tax.”
The share exchange process (known as ‘Bed and ISA’) lets you do this easily and cheaply in a single transaction. Find out more here.
Why it makes sense to invest regularly
While there’s certainly plenty of value in making lump sum investments on an ad-hoc basis, further findings from Hargreaves Lansdown show the second most common investment pattern among female investors is setting up regular monthly payments.
When it comes to investing, those who tuck money away can potentially reap big rewards; once again, starting early in the tax year can still be beneficial. Many platforms will let you put money in now as cash, and then drip-feed money into the market over a number of months. The advantage of this is that you reduce the risk of bad timing, as you’re not investing a large sum just before a market dip.
Hollands said: “This option takes the timing and emotion out of the equation altogether. Drip-feeding your money into an ISA regularly means investment decisions won’t be clouded by current sentiment or events that shouldn’t really matter if you are investing for the long-term.”
By saving a monthly amount, you can smooth out the highs and lows in share prices. This is because when they go up, the value of stocks rise, and when they go down, your next contribution buys more. This is known as ‘pound-cost averaging.’
Hollands added: “Regular investing is a great discipline that keeps you going through the ups and downs and helps reduce market timing risk, as you’ll end up with ‘pound-cost averaging.’”
To find out more about kickstarting the right attitude, read ‘How to develop an investing mindset.’
Photo by Alan Walker on Canva
