There are still four months to go until the new tax year begins on April 5. However, if you’re planning to open a Stocks and Shares ISA next year, I believe that now is the time to start getting your affairs in order.
Saving for the future
Every investor can put £20,000 a year into a Stocks and Shares or Cash ISA. Most people don’t have this kind of cash lying about, which is one of the reasons why I think it could be sensible to start planning your 2020 Stocks and Shares ISAs today.
There are financial benefits to doing so as well.
The early bird gets the money
According to my calculations, the sooner you start investing in a Stocks and Shares ISA, the more money you can potentially make over the long term.
For example, if a saver put away £20,000 at the beginning of April, and invested this money in a low-cost FTSE 100 tracker fund, they would have around £21,400 at the beginning of the following tax year. This is assuming that the FTSE 100 returns 7% over the 12 months, in line with its average annual return over the past decade.
In comparison, if the same saver deposited £20,000 over the space of a year (£1,666.66 a month), after 12-months of saving, the saver’s balance would have grown to £20,750. That is once again assuming that the money was invested in a low-cost FTSE 100 tracker fund.
This implies that while every saver has 12 months to make the most of their £20,000 a year ISA allowance, you should look to fill it up as soon as possible.
The power of compounding
The impact delayed saving can have on your money over the long term is even more pronounced.
According to my calculations, after 11 years, the saver who contributed monthly would have accumulated a balance worth £40,818.
The lump-sum investor would have £42,100. In both of these examples, I’m assuming no further contributions are made for the duration.
The bottom line
So that’s why I think it’s time to start planning your Stocks and shares ISA today. The figures above clearly show that savers who can contribute the full amount to the ISA at the beginning of the tax year, tend to do better over the long term.
That being said, how much you decide to contribute to your Stocks and Shares ISA is entirely up to you and depends on your own financial situation. There is no sense contributing as much money as possible at the start of the year, only to find you have to withdraw a lump sum six months later to meet an unforeseen cost.
The best way to grow your money over the long term, in my opinion, is to invest it. You should only be investing if you know you’re not going to need your money for the next 10 years or more, so it makes sense to start planning how much you can afford to deposit as soon as possible.
