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.
