Vanguard analysis reveals that, for those with the means to do so, investing your total ISA allowance at the beginning of each tax year can significantly boost your returns, compared to leaving it until just before the deadline.
James Norton, head of retirement & investments at Vanguard, said:
“We see that many people rush to max out their ISA allowance at the end of a tax year, rather than at the beginning, missing out on almost a year of tax-efficient returns.
“While investing a £20,000 lump sum at the start of the year isn’t realistic for most people, the real takeaway is that time in the market really matters.
“The key is to make your money work for you as early as you can, in a way that fits your circumstances. Ultimately doing something is almost always better than doing nothing – especially when the alternative is your cash being eroded by inflation.”
In the next 25 years – how could this work for the hypothetical investor?
Our hypothetical investor invests £20,000 on 6th April 2025, followed by an additional £20,000 at the start of every subsequent tax year.
Assuming an annual return of 5.5% after fees, their investments would be worth £1,079,320 by the end of the 25th year.
But if they wait until the end of each tax year to invest (i.e. every 5th April starting from 2026), their pot would be worth £1,023,052 after 25 years – that’s around £56,000 less.
Over the past ten years – how did this work in real life?
Vanguard compared the returns – over the past 10 years – of £20,000 invested into global shares at the beginning of each tax year (6th April), with £20,000 made at the end of each tax year (5th April).
The annual ISA allowance of £20,000, invested into global shares at the beginning of each tax year, would have amassed £393,102 from a £200,000 investment over the past ten years.
In comparison, a £20,000 investment made at the end of each tax year over the same period would have returned £349,234 – around £44,000 less.
