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Why You Mustn’t Wait A Year To Buy Your Next ISA

Pound CoinsThe so-called ISA season is over for another year. If you didn’t use your £11,520 ISA allowance for the 2013/14 tax year by midnight on 5 April, you have lost it for good.

That means you don’t need to worry about how to invest your ISA for another year, right? Wrong.

Waiting until at the end of the ISA season to invest your money tax-efficiently is plain daft.

Worse, it’s an outright error. An expensive error.

One that may have cost serial offenders anything up to £30,000 over the last 10 years.

30,000 Reasons To Invest Today

Now £30,000 is an awful lot of money to throw away, simply because you have failed to get your act together.

Especially since that £30,000 would all have been free of tax.

So where does that number come from?

Fund manager Fidelity has crunched some numbers to illustrate the benefits of investing your ISA allowance at the beginning of each tax year, rather than waiting until the end.

The early birds, as it calls them, could have earned around £30,000 more than the sleepyheads, as I call them.

Wise Investors Do It Early

Fidelity takes the example of some clever soul who invested their full ISA allowance at the start of each tax year for the last decade in the FTSE All-Share Index.

Over 10 years, they would have invested in a total of £93,080. Their money would now have grown to a whopping £167,619.

That’s a profit of £74,359. Which is all free of tax, remember.

First, can I just point out that despite all the turbulence of the past decade, stock markets have still made a lot of money for investors, from a combination of dividends and growth.

Second, that £74,359 is a lot more profit than you would have made by investing at the end of each ISA season instead.

A Johnny-come-lately who waited until the end of each tax year would have a pot of just £136,909.

That is an incredible £30,710 less than the early bird. 

Yet both investors parted with exactly the same amount of money.

There is a simple reason for this big difference. The longer your money is in the stock market, the more time it has to share in stock market growth.

Action This Day

Over time, even a small delay can add up to big losses. So don’t hang around.

The 2014/15 ISA tax year kicked off on 6 April.

Even if you haven’t got enough spare cash to make use of your full ISA allowance, currently £11,880, it will still pay to start investing smaller amounts today.

Fidelity’s figures show that a regular monthly saver who split their ISA investments into 12 equal amounts will have £143,580 after 10 years, £6,671 more than the last-minute investor.

If you have already invested your full allowance, make a note in your diary for 1 July. On that day, your allowance will increase to £15,000, following changes introduced in Chancellor George Osborne’s recent budget.

Early bird investors will want to take advantage of that as well.

The ISA season hasn’t just drawn to a close after all. For smart investors, it has already begun.

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Harvey Jones doesn't own shares in any company mentioned in this article