Happy New – Tax – Year

Did you enjoy the fireworks on Friday night as we welcomed in the 2024/25 tax year?! Maybe it was just me…

I hope this tax year is a good one for you and you achieve all your new (tax) year’s resolutions.

Okay, I’m being a tad flippant here. Even I didn’t stay up to the bells on Friday 5th April as we waved goodbye to the fond memories of 2023/24.

But alas, tax years come and go; you shouldn’t pre-occupy yourself with the changes.

Indulge me with a metaphor here.

The tax year is simply the football pitch’s goals, with the goalposts framed from April-April. Within the ‘goals’, there are various allowances to use and taxes to pay, and if we don’t do this within the goalposts we lose out (see my previous article if you need a reminder on things to be thinking about).

There’s a well known saying in financial services that you ‘shouldn’t let the tax tail wag the investment dog’ 🐶

In other words: don’t become too hung up on optimising your tax position or fretting about tax years. Yes, using your ISA allowance/pension allowance/Capital Gains Tax exemption are all great steps when it comes to good financial planning and can help to keep more of your wealth in your pocket.

But the true measure of long-term success with your financial plan will transcend tax rates, annual exemptions and government budget changes.

Put simply, the difference between you achieving your financial goals or failing miserably is more likely to come down to two key components.

In order of increasing importance these are:

1. Your portfolio’s asset allocation.

2. Your behaviour as a sensible investor.

➡️ Lesson 1 – stop worrying about what to invest in and focus instead at the higher level of which asset classes to invest in.

The key driver of long-term returns in your portfolio will come down to having a decent growth potential exposure and relying on the wealth creation engine that is the stock market to carry you through. Remember – this isn’t as risky or as daunting as it seems. Need I remind you that the stock market is all around us?

If you have the investment timeframe to do so and are comfortable removing your emotions from your investment plan, then you should be focusing on securing long-term returns from equities (the great companies of the world). Sitting with wealth ‘in the bank’ only results in a poorer quality of life for you tomorrow. The ‘terminator of wealth’ that is inflation has little respect for cash savings accounts.  If you can’t quite stomach the heat of equity investing you should (i) surround yourself with a professional who can help you allay this fear, or (ii) consider blending your portfolio with ‘safer’ asset classes like government or corporate bonds. Note however that ‘safer’ is a spectrum and evidence tells us that the only way to grow your wealth consistently over the long-term necessitates a good exposure to equities.

➡️ Lesson 2 – it’s all very well planning which asset classes you wish to invest in, but the key determinant of success will be how you behave thereafter.

Market crashes and portfolio drops will come.

And you should be delighted that they do; this is the short-term cost for you achieving long-term financial reward and living life on your terms. Cash in the bank won’t grant you this flexibility and comfort.

By adopting diligent behaviours – such as regularly saving each month, increasing your contributions every year and tuning out the Never Ending Worry Service that is the ‘news’, you can make your wealth work harder and grant yourself freedom, flexibility and comfort in life. That’s what it’s all about after all.

So yes … Happy New (Tax) Year to you.

But if you focus instead on these two key lessons, then you won’t go far wrong.


Benjamin Mitchell

Benjamin Mitchell

I’m a chartered financial planner that can help you plan for tomorrow and also live for today.

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