It’s already a week since last tax year’s Stocks and Shares ISA allowance expired, and many investors have dropped the subject by now. This happens every year. Once people use their ISA allowance for one tax year, they don’t give it much thought for 12 months, but they should.
I think the start of the new financial year is actually the best time to invest in a Stocks and Shares ISA, rather than the worst. The early bird catches the worm, they say, and that is certainly the case when it comes to investing in equities.
Every UK adult was issued with a new £20,000 ISA limit one week ago today on April 6, and it pays to use it earlier rather than later. Figures repeatedly show that those who invest on the first day of the new tax year beat those who leave it until the last minute.
Early birds beat late risers
It’s common sense, when you think about it. Over the longer run, stock markets go up more than they go down. So the longer your money is invested, the more time it has to grow. That’s why I wouldn’t let any money I might invest in my Stocks and Shares ISA sit idle for 12 months.
Early bird investors who invested £20,000 on day one of the financial year would have £264,136 after 10 years, assuming an average return 5% a year, according to new research from Interactive Investor. Those who left it to the last minute would have £251,558, that’s £12,578 less.
Over 20 years, the impact is even more stark. Early-bird Stocks and Shares ISA investors would end up with £694,385 while last-minute investors would have £661,319. That is £33,000 less, despite both investors generating the same annual return.
Although most of us won’t use our full £20,000 Stocks and Shares ISA allowance, the principle still holds. The earlier investors use their allowance, the more growth and dividends they generate, and the more their wealth grows.
I’d use my Stocks and Shares ISA today
There are plenty of exciting opportunities out there right now, both on the FTSE 100 and the FTSE 250. Some top-class companies have seen their share prices climb more than 50% year-to-date. Why wait?
Early investors have come unstuck just once in the last 22 years, according to research from AJ Bell. The sharp market crash in March last year, triggered by the first lockdown, handed last-minute Stocks and Shares ISA investors an opportunity to buy cheap shares.
There is little point trying to time the stock market in this way though. Nobody knows where share prices will go next. What I do know is that the longer my money is invested in a Stocks and Shares ISA, the less I need to worry about short-term stock market volatility. History shows that 21 times out of 22, the best time to invest is this year, rather than next. I’ll take those odds.