Interactive Investor

ISA early bird investors almost twice as likely to be ISA millionaires

31st March 2021 16:16

Myron Jobson from interactive investor


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Our research shows how investing at the start of the new tax year can really add up.

  • 37% of total subscriptions among ii ISA millionaires for the current tax year (2020-21) came between 6 and 30 April 2020, compared to just under 20% for all other ISA investors

With the end of the tax year now in sight, now is a great time to have a good look at your finances and make sure you are maximising your saving potential and prepare for the year ahead.

When it comes to ISA investments, there is countless research illustrating that it can pay to invest your ISA allowance at the start of the tax year, rather than leaving it to the last minute.

Calculations by interactive investor show that although there only appears to be one day in it, someone who chooses the early-bird route investing the full £20,000 ISA allowance at the start of each tax year (6 April), rather than the end of it (5 April), could end up with a portfolio worth £264,136 after 10 years - assuming a 5% annual return.

This is £12,578 more than those investors who choose to invest the same £20,000 at the end of each tax year and effectively only have 9 years’ worth of growth, where their portfolio would have grown to £251,558.

Over 20 years the impact is even more stark, with the difference between early-bird and last-minute investors resulting in a portfolio worth over £33,000 more by investing early - £694,385 compared to £661,319 if you generated a 5% annual return.”

Early bird investing is a popular strategy among interactive investor’s wealthiest ISA investors. 37% of total subscriptions among ii ISA millionaires for the current tax year (2020/21) came between 6 and 30 April 2020, compared to just under 20% for all other ISA investors

Of course, nothing is guaranteed, and these scenarios are for illustrative purposes only.

Myron Jobson, Personal Finance Campaigner, interactive investor, says: “Many of us are not fortunate enough to be able max out the annual ISA allowance at the start of the year – especially at a time where many have experienced a significant loss of income as a result of the coronavirus crisis. But if you have 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. Put another way, more of your money is sheltered from the taxman.

“Of course, the all-in-one approach runs the risk of unfortunate timing if stock markets experience heavy falls – especially amid the prevailing Covid-19 stocked market volatility, but history shows that markets have a knack of recovering from heavy losses overtime for long term, patient investors.

“While overall it is good to be early, time in the market matters most. Nervous investors can drip-feed investments monthly to help smooth out the inevitable bumps in the market, buying fewer shares when prices are high and more when prices are low – a process known as pound-cost averaging.”

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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