Why It Pays to Invest Your ISA Allowance TODAY

The ISA season is over and Harvey Jones says this makes now the perfect time to invest in… an ISA!

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

No sooner does one individual savings account (ISA) allowance expire than a new one springs into life. So while the deadline for investing your 2015/16 ISA allowance passed at midnight on 5 April, you were free to tuck into your 2016/17 ISA allowance the very next day.

To everything there is a season

Yet too many of us will do no such thing. Up to two thirds of all ISA sales are made during the so-called ISA season, the final weeks before the 5 April deadline, as investors rush to use their allowance before they lose it for good. It is a very human response, to leave things until the last minute. But procrastination is the thief of time, they say, and it’s also the thief of investment returns.

New figures show that the ideal time to invest is right at the start of the ISA season, rather than the end. If you think you can forget all about ISAs for the next 11 months, you couldn’t be more wrong, and here’s why. The best time to invest is RIGHT NOW.

Compound those pounds

If you’d invested £1,200 in the FTSE All Share at the end of each tax year for the last 10 years it would have grown to £13,664 today, according to new figures from Fidelity International. But if you’d invested at the start of each year instead you’d have £15,198, or £1,534 more.

The obvious reason is that investing early gives your money an additional 12 months of tax-efficient compound growth. Physics genius Albert Einstein once claimed that compound interest is the most powerful force in the universe, and he was only half joking.  “He who understands it, earns it… he who doesn’t, pays it,” Einstein said. The more compounded returns you earn, the richer you’ll be.

Wise investors do it every month

There’s another advantage to using your ISA allowance at the start of the tax year. Paying lump sums into the stock market is always risky, but if you’re waiting until the Ides of March or thereabouts you have no choice. By starting today, you can set up a monthly savings plan and spread your investment across the year.

This doesn’t only spare you the agony of paying in a lump sum only to see it ravaged in a crash next day, it also means you benefit from that crash, as your regular monthly contribution will pick up more stock.

The ISA allowance for the 2016/17 tax year is the same as last year at £15,240. This is a generous sum, and only the wealthy can afford to invest the maximum amount. This will become even more marked from April 2017 when the allowance rises to a whopping £20,000. The danger is that this will give investors another reason to procrastinate, because if they fail to use this year’s allowance, they’ll still get plenty next year. Don’t let that happen to you.

The ISA year is over – long live the new ISA year. Celebrate by investing today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

More on Investing Articles

Passive income text with pin graph chart on business table
Investing Articles

Yields of up to 7%! I’d consider boosting my income with these FTSE dividend stocks

The London market has some decent-looking dividend stocks right now, and I’m tempted by these two for growing income streams.

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

I’d put £20K in an ISA now to target a £1,900 monthly second income in future!

Christopher Ruane shares why he thinks a long-term approach to investing and careful selection of shares could help him build…

Read more »

Mature couple at the beach
Investing Articles

6 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »