Drip feed or lump sum - which is the best investing approach for the new tax year?

Quilter Private Client Advisers

As one tax year comes to an end, Quilter is urging consumers not to neglect the start of the new one as the benefit of investing regularly clearly present itself.

Quilter has analysed the data and found were someone to invest the maximum contribution into the average performing IA Global fund, they would be more than £11,500 better off over the decade if they had invested on a monthly basis compared to leaving it until the last day of the tax year.

Even for a more cautious investor, putting their money into an IA Mixed Investment 40-85 per cent Shares fund, this figure still reaches a healthy £4,801 over the decade. The lowest risk investors (0-35 per cent Shares) would be better off to the tune of £2,014 compared to investing a lump sum late on in the tax year.

There is always a strong emphasis on the end of the tax year and for good reason. ISA allowances operate on a ‘use it or lose It’ basis, and we want to make sure everyone is maximising the amount they save and invest tax free.

However, the buzz around the end of the tax year can often mean people neglect the beginning of the new one and the benefits of utilising the whole 12 months you have to use your allowance. The data shows that if you got your finances in shape to invest on a regular basis, you might be better off than if you wait until the last minute.

ISA allowances are incredibly generous now, so even if you can only put in a small amount every month it is far better to do it now and build your savings over the year than to wait until the end. Furthermore, this approach will allow investors to benefit from pound cost averaging, allowing investors to drip feed money into the market and protect against any volatility that may be present. It can also help prevent any negative behavioural tendencies, such as trying to time the market, exit when the going gets tough or be put off investing altogether.

Despite the ups and downs of the stock market, ‘time in the market’ remains one of the most important factors for the growth of a portfolio. This year will undoubtedly be harder for some as the cost of living rises, but people need to make sure they continue to invest for the long-term to give them the best opportunity to beat the rate of inflation. Starting as early as possible and investing regularly will help provide an extra boost in this challenge.

Pictured: Rick Eling, investment expert at Quilter