The 2017/18 tax year has drawn to a close and straight away a new tax year has begun, and, with it, investors will be inundated with marketing material from their fund platform that extols the virtues of being an ‘early-bird’ Isa investor, as opposed to leaving everything to the last minute at the end of the tax year.
The majority tend to follow the latter approach, evidenced by brokers having their busiest time of the year in the month leading up to the tax year end. Then a fallow post-April period follows, which prompts the call to action to investors to be quick off the mark with the new Isa allowance.
However, while the main motivation for brokers will be to drum up business, there is sound logic to the argument as far as investors are concerned.
If you have the cash to invest, your money will be in the market longer when it’s put to work at the start of the tax year, and in turn will benefit from a whole year of compounding returns.
Of course, there’s always the risk of unfortunate timing if stock markets suffer heavy falls at the start of a tax year, but such a scenario is a potential risk whenever a lump sum is invested.
On the other side of the coin, a rising market, such as prevailed through 2017, will pay off for early-bird investors.
The longer-term statistics show that it pays to invest the new Isa allowance straight away.
Figures from Fidelity show that someone who invested their full Isa allowance in the FTSE All Share index at the very start of each tax year from 2007 to 2017 would be £8,500 better off than their fellow investor who always left it until the last minute.
Separate research by Architas, but for the FTSE 100 index and looking at a slightly different time period (2006 to 2016), found that an early bird investor would benefit to the tune of just over £4,000.
This article first appeared on our sister website Money Observer.