Take advantage of the ‘fresh’ tax year

When we discuss financial planning at this time of year, it is usually associated with getting our tax affairs in order. Making efficient tax plans are undoubtedly very important, but it is important to also look at how we can use this opportunity to change our behaviours to improve our financial future.

Our own worst enemy

Many investors fail to reach the returns they should. We often don’t receive the returns our risk profiles should provide, not due to the performance of what is in the portfolio, but because of how we behave. The decisions we take around how much to save and invest, and when, are likely to have a significant impact on how much we can achieve with our money.

The problem is that following through on the actions required can be a struggle, especially when they require a lot of mental, emotional, or physical effort. Taking exercise to get fit or stay healthy, saving regularly towards short-term goals or investing fully for our long-term futures are all prime examples.

A fresh start

One way to help us improve our decisions is by using the end of the tax year to signal a ‘fresh start’ for our finances . A body of recent research has shown how framing decisions around a mental landmark has been shown to motivate aspirational behaviour¹ including financial decisions. Presenting decisions in terms of a fresh start can have material consequences; in one study it increased pension saving participation by around 50% and average savings rates by 25%².

Taking advantage of this fresh-start effect will not be new to anyone who has made a New Year’s resolution, however the start of Spring (a new financial year) has been shown to have the greatest power. New Year’s resolutions are often unsuccessful due to their grand and vague nature which lack specific actions, such as ‘lose weight’ or ‘get organised’, so it’s also important to make sure plans translate to specific and realistic actions.

The right frame of mind

At Barclays, we talk a lot about framing when it comes to investment performance. This is because the context in which we evaluate information can have a profound effect on how we feel and the decisions we make. Evaluating our investments’ absolute performance year to date in the current environment will no doubt lead to undue anxiety, only warranted if you need to access your investments now. As long-term investors, history suggests we are better taking a step back and reviewing the performance of our investments in line with the timeframes of our aligning performance to our goals horizon. However, the evidence would suggest that we should also think about framing the actions we want to take around a fresh start, in order to improve our chances of success.

Conclusion

As this tax year comes to a close, we should use the opportunity of new beginnings to frame the ideal behaviours we want to see in ourselves. Whether that be starting a regular saving and investing habit, or investing our surplus cash to make it work harder for us. The decision to invest in the current climate is extremely difficult. In truth it is never easy, but in the long term it is often rewarded . So, consider using the new financial year as a fresh start to build better behaviours towards reaching your financial goals.

We don’t offer personal investment advice so if you’re unsure you should seek that independently.

Funds are designed for the long term so you should only consider them if you can stay invested for at least five years.

These are our current opinions but the future, as ever, is uncertain and outcomes may differ.

Read the Assessment of Value report [PDF, 3.2MB] for funds run by Barclays.