Analysis by broker Hargreaves Lansdown found that those who invest earlier in the tax year produce better returns than those who wait until the end.
“ISA early birds get the returns,” said Sarah Coles, head of personal finance, Hargreaves Lansdown.
With the end of the tax year fast approaching, many will be making preparations to use their ISA allowance before they lose it. However, it is those who choose to invest in the early days of the tax year rather than the last days that earn the best returns, according to Hargreaves Lansdown.
“The earlier you use your ISA allowance in the tax year, the better, because your investments have longer to grow, and are protected from tax straight away. Over the past ten years, investing on the first day of the tax year could have left you £38,000 better off,” Coles said.
HL’s analysis found that if an investor invested their full ISA allowance in the Legal & General International Index fund on the first day of the tax year every year for the past decade, they would have seen their investments grow to £360,500. This would compare to £322,500 if they had done it on the last day of the tax year.
Sarah Coles explained the benefits of having your money invested from the beginning of the tax year, and also the potential constraints of doing so:
“Early bird ISA investors who have a lump sum to invest at the outset gain up to a whole year of dividends and potential growth in the stock market ahead of those who leave it until the last minute. And because their investments are protected from tax, they don’t risk having to hand over any of these extra gains to the taxman,”
“The early birds aren’t sitting pretty every tax year, and at times of market falls, those who got in towards the end of the tax year will have dodged the drops earlier on. However, the fact the early birds do so much better over time shows how these years are soon forgotten among average stock market performance.”
