Every UK adult is now able to take advantage of a new £20,000 Stocks and Shares ISA contribution limit (if they have they cash), but most won’t have done much about it yet. They’re making a costly mistake.
Even super-keen investors take a leisurely approach to their new ISA allowance, knowing they have a full year before they need to use it up. Others will be low on ammunition having just maxed out last year’s allowance.
Yet there’s no time to waste. This is the absolute best time of the year to start investing in a Stocks and Shares ISA. New figures show that so-called early-bird ISA investors typically make more money than those who leave it to the end.
Don’t hang about!
Someone who invested £3,000 in a Stocks and Shares ISA on the first day of every tax year since ISAs were launched in 1999 would have £9,271 more than those who waited until the last minute, AJ Bell research shows.
Both would have contributed exactly the same amount in total – £72,000 – but the early bird investor would have £200,373, against £191,102 for last-minute deadline dodgers.
These figures assume both invested in the same global equity fund. The £9,271 difference is purely due to timing, and it’s quite dramatic.
Brian Byrnes, head of personal finance at digital wealth manager Moneybox, says that making early contributions means your money is growing tax-free from the very start of the new tax year. “You’ll benefit sooner from compound interest, which helps you get to your financial goals faster,” he says.
Those who don’t have a lump sum can still benefit by drip-feeding small amounts regularly from the beginning of the new tax year, Byrnes adds. “It also takes the stress out of the last-minute rush as the next tax year draws to a close.”
I’m not wasting time
Personally, I don’t have enough cash to use my full Stocks and Shares ISA allowance all in one go, but I’m keen to invest all I can. Not just for the reasons set out above, but also because I think there are lots of exciting opportunities out there right now, especially among FTSE 100 dividend stocks.
Right now, Barclays is high on my shopping list, as it’s dirt cheap trading at five times earnings, while I’m also tempted by consumer goods giant Unilever. It promises a terrific combination of long-term share price growth and dividend income.
Shares in BT Group and British Land have taken a hammering but they’re really cheap and now could be a good entry point for a long-term investor like me. I’m also flipping a coin between targeting insurers Aviva and Legal & General Group. Both are cheap and yield more than 7%.
While now looks like a great time to buy shares, nobody can say that for sure. If markets crash in the summer, early bird investors could take a short-term hit. Yet in the long run, the principle of getting in early still holds. Plus the earlier I invest, the sooner I earn dividends.
I’m going to start loading up my portfolio in May, so my money starts compounding as early as possible. There really is no time like the present.
