Yahoo Finance Early bird ISA investors can make an extra £37,632
Investors who decide early on to put their money towards an ISA can get an extra £37,632, a new survey has found.
According to DIY investment platform Interactive Investor it can be more productive to invest earlier in the tax year rather than waiting until the last minute.
Calculations by Interactive Investor, shows that investing the full ISA allowance into the average IA global fund at the start of each tax year (6 April) since ISAs were introduced in 1999 would have turned a total contribution of £263,440 into £667,187.
This is £37,632 more than if the same amount was invested at the end of each tax year (5 April) over the same period and effectively only have nine years’ worth of growth: the portfolio would have grown to £629,555.
Early bird investors who invested the full ISA allowance in the average UK fund over the same period would have been £23,412 better off than those who left it to the last minute — £510,132 versus £486,720.
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That is not to say such performance could be replicated in the future.
Myron Jobson, senior personal finance analyst at Interactive Investor, said: “Making the most out of your money has become increasingly important amid the cost-of-living crisis.
“For those who can afford it, investing earlier in the tax year rather than waiting until the last minute can help give you the financial edge over the long term. Whether you are one of the fortunate few able to max out your ISA allowance each year, or investing smaller sums, the principle is the same.
“The early bird ISA investor catches the best returns over the long term — not because of timing the market but time in the market.
"Investing at the start of the tax year means your money has more time to be put to work in the market in a tax-free wrapper and, in turn, reap the rewards from compounding returns and, for income investors, can generate dividend income across the whole year.”
Despite the 24 hour difference, if you start the clock on 6 April and one set of investors chooses the early-bird route and invests £20,000 at the start of each tax year, they will end up with a portfolio worth £264,136 after 10 years assuming a 5% return after charges — which is £12,578 more than those investors who choose to invest the same £20,000 at the end of each tax year and effectively only have 9 years’ worth of growth, where their portfolio would have grown to £251,558.
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Over 20 years the impact is even more stark, with the difference between early-bird and last-minute investors resulting in a portfolio worth over £33,000 more by investing early — £694,385 compared to £661,319 if you generated a 5% return after charges, the figures from funds supermarket platform show.
"Choosing to subscribe to your ISA at the start of the tax year doesn't eliminate the potential issue of market timing, but it does mean you are less likely to get caught up in a last-minute rush," Jobson added.
"Alternatively, regular monthly investing into your ISA can remove some of the risk of market timing, and it is also well suited for those with smaller sums to invest. You won’t have as much money being put to work in the market in one go, but it does take some of the emotion out of investing."
