The gloom of January is not helped by the niggling concern at the back of many people's minds. This is the last month in which we can submit our tax returns for the 2001-02 year and pay any money we owe. Miss the deadline and there's an automatic £100 fine.
The gloom of January is not helped by the niggling concern at the back of many people's minds. This is the last month in which we can submit our tax returns for the 2001-02 year and pay any money we owe. Miss the deadline and there's an automatic £100 fine (see the article alongside).
The start of the year is also the time for working out how we can make our investments as tax-efficient as possible via an individual savings account (ISA). If we want to use up this year's allowance, £7,000 per person, we must do so by 5 April. Otherwise the allowance is lost for ever.
The trouble is that the stock market is hardly enticing. Investors are reluctant to buy any more equities because many have lost considerable sums. Despite this, several fund management houses are launching new products, such as Legg Mason's US Equity fund, hoping to persuade investors to use up this year's ISA allowance.
Other managers are trying to calm investors' fears by launching funds in response to them. New Star's Managed Distribution fund, for example, has been designed to achieve a high level of income and long-term capital growth by investing in both bonds and equities. And Gartmore has gone a step further, calling its new fund the Cautious Managed fund.
But will investors take the bait? If you haven't used up this year's ISA allowance and have spare money, you shouldn't invest it just to take advantage of the tax breaks. Yes, they're a useful perk, allowing your returns to grow free of tax. When the market does pick up, you'll do better than if your money had been in a unit trust or open-ended investment company (Oeic) outside a tax-free wrapper.
But an investment decision should be made on its own merits. If you put money into a US equity fund, you should do so because you genuinely want to invest in US shares, not because it is ISA-able. Its tax-free status is a bonus.
And while equities have been in the doldrums, they are long-term investments. It is very hard to time your entry into, and exit from, the market and get it spot on. As Fidelity Investments says, it is easy to miss some of the strongest rises in the market by waiting for an upturn before investing, because often they will be followed by sharp declines.
Investors who missed the best 40 days of the UK market in the period from the end of 1987 to the end of last year would have reduced their annualised returns from 9.4 to 0.6 per cent. Few of us can afford that kind of loss.