Six financial planning opportunities when markets are down

1. Pay in a lump sum to cash in on the recovery.
2. Use the Lifetime ISA or pension to magnify your contributions.
3. Make your savings regular so you stay on track without having to make yourself do it.
4. Use the chance to protect more of your investments through Share Exchange (Bed and ISA).
5. Use the opportunity to rebalance your portfolio – without worrying  about tax.
6. If you make losses, you can carry them forward.

Sarah Coles, head of personal finance, Hargreaves Lansdown:

“Market downturns are times for steely resolve, and sticking with your long-term plan, but this doesn’t mean you should do nothing at all. There are opportunities in down markets to make a few changes that can not only improve your investment prospects, but could help you save tax too.

1. Pay in a lump sum to cash in on the recovery

There are plenty of investors who view market falls as a buying opportunity. It’s one reason why HL had a record day of trading in the midst of the tariff trauma on 7 April, and most of those trades were people buying into investments. It can be a great opportunity to get in while valuations are lower and take advantage of the market recovery.

At this end of the tax year, you can take advantage of another year’s allowances – with a fresh £20,000 to invest in a stocks and shares ISA and up to £60,000 to put into a pensions.

2. Use the Lifetime ISA or pension to magnify your contributions

When you pay into a Lifetime ISA, you’ll automatically get a 25% top up from the government, and if you pay into a pension, you’ll get tax relief. Both will give you more bang for your buck, putting more money into the markets on day one. It means you can buy more investment units at a lower price and benefit more from market gains.

3. Make your savings regular so you stay on track without having to make yourself do it

Paying into markets while they’re lower is a great strategy, but not everyone finds it easy, especially when the outlook remains uncertain. One useful option is to set up or increase regular direct debit payments into stocks and shares ISAs or pensions. These will ensure you take advantage of times like this automatically. You never have to make an active decision to buy when the markets have fallen, because you’ll automatically be investing each month.

4. Use the chance to protect more of your investments through Bed and ISA

If you have investments outside ISAs and pensions, they’ll be vulnerable to tax if you bust the annual dividend or capital gains tax allowances. You have a new ISA allowance at the start of the new tax year, so it’s a great opportunity to move up to £20,000 of these investments into a stocks and shares ISA using the Bed and ISA, or share exchange, process. This effectively sells up outside the wrapper and rebuys the same assets inside it. Your investments are then protected from these taxes in future.

However, when you’re doing this, you need to pay attention to the gains your investments have made. Ideally you want to move assets that have made gains below the annual allowance of £3,000. After market falls, while these gains are lower, it means you can move bigger chunks of your portfolio without triggering a tax bill, and protect more of your investments.

5. Use the opportunity to rebalance – without worrying about tax

The best way to protect yourself in any market is to spread your investments over a wide range of assets and geographies. Over time, some investments will do better, so they’ll come to make up more of your portfolio that you might have initially planned. It will usually make sense to sell some of those that have done better, and rebalance your portfolio.

Market falls are a good time to do this. They may have exposed how your investments have become unbalanced over time, and provided a timely reminder that some housekeeping is in order. If your investments are outside an ISA or pensions wrapper, rebalancing raises the risk of busting your capital gains tax allowance in the process, and market falls may have cut this risk.

6. If you make losses, you can carry them forward

It’s never ideal to sell at a loss, but there are times when it can make sense for your overall investment strategy. If market falls leave you in this position, and you’re selling assets outside an ISA, you can take advantage of these losses. Use them to offset gains in the same tax year. Alternatively, make sure you report them to HMRC on your tax return, and they’ll be offset against gains in future years.