No sooner does one individual savings account (ISA) allowance expire than a new onesprings into life. So while the deadline for investing your2015/16 ISA allowancepassedat midnight on 5 April, you were freeto tuck into your 2016/17 ISA allowancethe very next day.
To everything there is a season
Yet too many of us willdo no such thing. Up to two thirdsof all ISA sales are made during the so-called ISA season, the final weeks before the 5 April deadline, as investors rush touse their allowance before theylose it for good. It is a very human response, to leave things until the last minute. But procrastination is the thief of time, they say, and its also the thief of investment returns.
New figures show that the ideal time to invest is right at the start of the ISA season, rather than the end. If you think you can forget all about ISAs for the next 11 months, you couldnt be more wrong, and heres why. Thebest time to invest is RIGHT NOW.
Compound those pounds
If youd invested 1,200 in the FTSE All Share at the end of each tax year for the last 10 years it would have grown to 13,664 today, according to new figures from Fidelity International. But if youd invested at the startof each year instead youd have 15,198, or 1,534 more.
The obvious reason is thatinvesting earlygives your money an additional 12 months of tax-efficient compound growth. Physics genius Albert Einstein once claimed that compound interest isthe most powerful force in the universe, and he was only half joking. He who understands it, earnsit he who doesnt, pays it, Einsteinsaid. The more compounded returns you earn, the richer youll be.
Wise investors do it every month
Theres another advantage to using your ISA allowance at the start of the tax year. Paying lump sums into the stock market is always risky, but if youre waiting until the Idesof March or thereaboutsyou have no choice. By starting today, you can set up amonthly savings plan and spread your investment across the year.
This doesnt only spare you the agony of paying in a lump sum only to see it ravaged in a crash next day, it also means you benefit from thatcrash,as your regular monthly contribution will pick upmore stock.
The ISAallowance for the 2016/17 tax year is the same as last year at 15,240. This is a generous sum, and only the wealthy can afford to invest the maximumamount. This will become even more marked from April 2017 when the allowance rises to a whopping 20,000.The danger is that this will give investors another reason to procrastinate, because if they fail to use this years allowance, theyll still get plenty next year. Dont let that happen to you.
The ISAyear is over long live the new ISAyear. Celebrate by investing today.
