Why early bird ISA investors beat those rushing in at the last minute

13th April 2015


Early bird investors are more than £10,000 better off than those who leave it until the end of the tax year to make their investments, according to analysis by Fidelity Personal Investing.

The Easter Bank Holiday weekend marked the end of the tax year and witnessed a flurry of investors rushing to ensure they did not lose their tax-break. But getting in early, at the very start of the tax-year can prove a much more financially rewarding.

The table below shows the returns achieved by three hypothetical ISA investors, who invested their full ISA allowance each year over the past 10 years into the FTSE All Share Index.

  Total invested – using their full ISA allowance each year since the 2004/5 tax year                Final pot today
Investor A:  the lump sum early bird, who starts investing at the beginning of the new tax year.



Investor B: the monthly saver, who splits their ISA payments equally each month and starts investing at the beginning of the new tax year.



Investor C:  the lump sum last minute investor, who leaves it until the last day of the tax year, each year to invest.



Source: Fidelity Personal Investing, April 2015 

As the table shows, investing a lump sum at the start of the tax year yielded the best results.

Of course, not everyone may have a lump sum at hand to invest at the beginning of the tax year, but it’s worth noting that Investor B, the regular monthly saver was still markedly better off than Investor C who had left it to the last minute.

Maike Currie, associate investment director at Fidelity Personal Investing, said: “When it comes to investing, it’s time in the market that counts – the saver with the most money invested for the longest time, tends to do the best in the long run. Every extra day you allow time to work on your ISA portfolio is a day that you won’t get back if you let it pass with your money sitting in a low-interest-paying bank account.

“Investing at the start of the tax year gives your money an additional 12 months of tax-efficient growth. You also benefit from the impact of compounding – that ‘snowball’ effect of building new investment returns on the investment returns you’ve already achieved.”

In addition, investing your ISA at the start of the tax year also ensures you get all the income from any dividends that are paid over the course of the year. The reinvestment of dividend income is a major contributor to the total return over time.

Currie added: “Capital gains may come and go as markets rise and fall but the best companies generate steadily rising dividends year in year out. Over time, reinvesting these can produce really impressive total returns.”

Leave a Reply

Your email address will not be published. Required fields are marked *