Early bird investing – using your ISA allowance at the start of the tax year

Many investors took the plunge and rushed to invest in an ISA during the final days of the 2016/17 tax year, with the final subscription for an ISA on Tilney’s Bestinvest service for online investors taking place at 11.56pm – with only four minutes to spare before the allowance disappeared for good.

It is human nature to leave things until the last minute. The emergence of online investing, which streamlines the process significantly, seems to have almost encouraged some people to wait to use their tax allowances.

We estimate that around 45% of clients on our Bestinvest service invested in an ISA in the last three months of the tax year, with a large proportion of them doing so in the last fortnight. In contrast, around 27% of our Bestinvest clients were ‘early birds’ who began investing in April 2016.

A whole year of potential returns

Data shows that in 14 of the last 20 years (April to end of March), the FTSE All Share Index delivered a positive return. This means that statistically, the odds are that the earlier someone invests in the new tax year, the better, whether in an ISA or a pension.

Not only does investing earlier in the tax year remove some of the pressure to make a hasty decision, it also means that hard-earned cash is put to work for longer. After all, as the saying goes, ‘the early bird catches the worm,’ and in the case of an ISA there is a whole year of potential returns to be had – and potentially less tax paid as well.

Another option is to take the timing out of the process altogether by investing on a regular basis. Investing regularly takes the emotion out of investing: it is all too easy to have investment decisions clouded by current sentiment or events that shouldn’t really matter when investing for the long-term. Investing regularly should also help to reduce market timing risk, as investors end up with ‘pound cost averaging,’ an average entry price that reflects some days when the market is up and others when it is down.

Reviewing existing investments

The new tax year is also as good a time as any to take stock of your existing investment strategy at a time when a lot of the hype has quieted, so please get in touch with us if you would like to talk about your investments. You can call 020 3131 6518, request a call back or email contact@tilney.co.uk.

We have award-winning investment management and advisory services. If you need help with achieving your financial goals, such as saving for retirement or investing for children, we have expert financial planners across the UK available to talk with you.

If it’s a cost-effective, easy to set up ISA or SIPP that you’re interested in, have a look at the award-winning accounts we offer through Bestinvest, which is the Tilney Group’s online service.