Is your New Year's resolution for 2025 to get to grips with your finances? If so, it might be time to take a closer look at what investing could do for your money.
You wouldn’t be alone in doing so. The first week of the new year is the busiest day for those seeking financial advice, with 2 January being the most popular day for enquiries to advisers, according to Unbiased.
Unlike putting your money in a savings account, beyond making the most of good rates, your returns from investing will be affected by when you put your money in.
Here, we take a look at whether investing earlier in the year is better for your money, and how you can save on your investments in 2025.
Please note: the content contained in this article is for information purposes only and does not constitute financial or investment advice.
Make your money go further
Find the best deals, avoid scams, and grow your savings with our expert guidance. From only £4.99 a month.
The ‘January effect’ is the simple idea that stocks tend to perform well in January. Investment firm Schroders looked at 130 years of data and found January tends to perform well relative to other months.
The effect is noted especially on ‘small-cap stocks’, which are shares in smaller companies.
You can find small-cap stocks in broader indexes such as the FTSE All-Share.
The 'January effect' isn't a rule, however: you only need to look back to last year to find a January where the value of the FTSE All-Share Index fell.
There’s no definitive answer as to why January tends to be a good time for investors, but there are a few theories.
One is that investors sell more loss-making shares in December to be able to offset those losses against any gains to lower their capital gains tax liabilities, and then they buy them back in January, which drives prices back up.
Others include the idea that investors have more money to invest in January and that people are generally starting the year with some enthusiasm.
People investing more in a certain month for other reasons like this can feed into the idea of a particular month being good for investments, causing more people to invest, which in turn boosts share prices. And the cycle continues…
Get a firmer grip on your finances with the expert tips in our Money newsletter – it's free weekly.
This newsletter delivers free money-related content, along with other information about Which? Group products and services. Unsubscribe whenever you want. Your data will be processed in accordance with our Privacy policy
Should you try to time your investments?
In theory, if you invest at the perfect time, when prices are low, you’ll stand to make a much bigger profit if the price of the stock rises. But, in practice, this is hard to achieve.
It’s much riskier to make the timing of your investments a key part of your strategy, and you could lose out more by trying and getting it wrong than by ignoring it completely.
An alternative to picking the right or the wrong time to invest is to invest gradually over a longer period of time. Doing this, you can benefit from something called pound-cost averaging, which means by investing regularly you even out the high and low prices you buy at.
You might not be able to match the returns of investing at the exact right moment with regular investing, but you could miss the big losses of getting that timing wrong.
Most investment platforms offer regular investment services, and some offer you lower transaction fees and sometimes lower account fees if you set up a regular monthly payment.
This can take some of the admin out of the investing process and make use of pound-cost averaging.
Many regular investment services have a lower minimum amount compared to what you need to make a lump sum, which can require as much as £1,000.
There can be limitations on what investments you can access while regular investing, for example they might need to be traded in GBP.
The investment platforms where regular investing saves you money
You may not need to rush to invest as there's still a compelling reason to move money in the next few months – your Isa allowance.
Signing up for a stocks and shares Isa or using up more of your annual tax-free allowance of £20,000, will mean you don’t need to pay taxes on any of the returns you make.
The tax year ends on 5 April 2025 and any unused allowance you have won't rollover.
If you have investments in a general investment account, but still have some allowance leftover, consider going through a ‘bed and Isa’ process to minimise how much tax you'd need to pay on your investments in the future.
If you're not sure what to invest in yet, it could be worth putting your money in a cash Isa before the tax year ends to make sure you're making full use of your allowance. It will be easiest to transfer into investing if you set up a cash Isa with a provider that also offers a stocks and shares Isa.
How to get the most out of your investments in 2025
Make sure you have an emergency fund before you get started You should have between three and six months' living expenses (or nine if you're retired) saved in an easy-access account before you start investing. This way, you don't have to sell your investments to pay for any unexpected expenses – for example to replace a stolen phone or pay a parking fine – and you don't risk losing out on your money by needing to access it at a time when your investments are down.
Invest in line with your goals What you invest in should depend on why you’re investing. For example, if you’re closer to retirement, you should think about lowering the risk of your investments so there's less chance of them dropping significantly in value when you need to withdraw your money.
Watch out for fees You could be spending more than you need to on fees, whether it’s fund fees or transaction and account costs on the platform you use. If you’ve got money in an expensive investment fund, you might be able to find a cheaper fund investing on the same theme or index. You can also switch platforms if you’re paying over the odds in account and transaction fees.
