Early bird ISA investors are £2,000 better off
Don't wait until the last minute to invest this year's ISA allowance. Chances are, you'll make more money if you get cracking now.
Have you ever opened an ISA at the last minute? Just a day or two before the annual ISA deadline?
I certainly have. When you lead a busy life, getting an ISA is never at the top of your priority list - it can always wait another week or two. But when the deadline is only 48 hours away, everything changes and you’re then in the middle of a mad rush to open an ISA before it’s too late.
If you’ve ever been a last minute merchant, you’re not alone. We always see a big rush for new ISAs in the week or so before the tax year ends in April
However, I think this approach is a mistake. If you get an ISA in a hurry, you’ll have less time to pick the right ISA for you. That applies whether you’re going for a Cash ISA, a Stocks & Shares ISA or a mix of the two.
What’s more, research from Fidelity shows that people who invest at the beginning of the financial year make more money than folk who wait until the very end.
Let’s look at two people who since 1999 have invested their full ISA allowance every year in a FTSE 100 index tracker fund. One person invests at the beginning of the year, the other at the end. According to Fidelity, the early bird investor is now £2,000 better off than the last minute merchant.
This research doesn’t surprise me. When it comes to investing, time is one of the investor’s best weapons. The longer you stay invested, the more dividends you’ll receive from companies, and if you reinvest those dividends, the more your investment pot will grow.
Do it now!
So the lesson is clear. If you have any spare cash to invest in an ISA, crack on and do it now. The new financial year has just started, and the new ISA allowance for this tax year is £11,520. You can put up to half of that allowance in a Cash ISA (£5,760).
If you’re not sure where to place your ISA cash, you can get some great ideas in these two articles:
The UK’s best Stocks and Shares ISAs
The best Cash ISAs for the new tax year
Just make sure you don’t get caught up in a mad rush before the next deadline in April 2014!
More on investing and ISAs
The cheapest investment platforms – rivals to Hargreaves Lansdown
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Comments
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'One person invests at the beginning of the year, the other at the end. According to Fidelity, the early bird investor is now £2,000 better off than the last minute merchant.' Yet another average statement made with hindsight! Buy the FTSE Index Tracker Fund when the FTSE is low... e.g.: immediatley in the aftermath of 9/11 2001, or just before the (second) Iraq war in 2003, or after the Leman crash... don't buy when the market is high i.e. 6/4/2013 - a couple of weeks ago. The market tends (not always) to rise from September to January... so if you have to go into the market, then during September.
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Rustybrain, You are not alone. However, if you leave it for one more month you are not really losing anything as this one month delay will cycle through and, if your habit/need to leave it to the last minute continues you will have lost nothing and gained much - always assuming that the predictions above also continue and, of course, if you actually manage to find something which makes a real terms profit and manage to cash it in before it goes belly up. You will have lost one year's allowance numerically but in fact you will only have lost one month compared to your current system - unless you win the lottery and then it won't matter much anyway.
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You can't invest what you haven't got. I am one of those "guilty" of filling my ISA allowance at the end of March. I did not have the cash available to invest last April. Are you saying I should have waited a week and then invested at the start of this new tax year and missed out on using the previous year's allowance? If your 'early bird investor' had missed a whole year of investing I doubt the figures would look nearly so favourable!
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18 April 2013