Bestinvest Logo

What are the advantages of early bird investing?

History shows investing in your ISA at the start of the tax year can boost returns – this article explains it all.

Published on 12 Apr 20225 minute read

Written by Jason Hollands

It is human nature to leave things until the last minute so at the end of every tax year we see a rush of savers scrambling to fund ISAs and take advantage of their annual ISA allowance. Typically, 45% of ISAs on the Bestinvest platform are funded in the last two months of the tax year.

The earlier you invest, the better

But history shows that over the long term it’s early bird investors that tend to earn higher returns than those who leave it until the last minute.

Data shows that in 17 of the 23 tax years (April to March) since ISAs were launched in 1999, the MSCI AC World index of global equities delivered a positive return – a 74% track record of gains delivered over the tax year.[1] This means that statistically, the odds are that the earlier you invest in the new financial year, the better – backing up the age-old wisdom that it’s time in the market that counts.

Early-Bird Bella versus Last-Minute Luke

If Early-Bird Bella had put £1,000 into the MSCI AC World index on the first day of every tax year since 1999, she would be £4,388.57 or 5.5% better off than Last-Minute Luke who had done the same on the last day of the tax year – £84,404.73 versus £80,066.17.[2]

On 5 April 2021:

  • Last-Minute Luke would be holding £1,000 in cash to put into an ISA on the last day of the tax year
  • Early-Bird Bella, who had invested in global equities a year ago on 6 April 2021, would have about £1,115.19 minus fees.

If our two savers had enough money to use their full ISA allowance every year since the inception of ISAs, then the differences are even more stark:

  • Early-Bird Bella’s pot would have accumulated an impressive £814,983.44 as at the end of March 2021, £55,011.74 or 7.2% more than Last-Minute Luke’s £759,971.70.

The benefits of compound returns

What these examples also illustrate is that both Bella and Luke made substantial compounded returns from remaining in the market for more than two decades, despite periods of turbulence such as the bursting of the Dot Com Bubble, the Global Financial Crisis and the Coronavirus crash.

In the low contribution example, even Luke ends up with an effective total return of 248%, trebling his investment of £23,000. In the maximum contribution example, he earns an effective total return of 182%, nearly trebling his investment of £269,560. This goes to show that, over the long term, it’s probably better to be a Last-Minute Luke than not bother with an investment ISA at all.

That’s not to say that savers should rush to start investing without due preparation: it is important to review your portfolio, set your goals and choose investments that suit your time horizon and tolerance for risk after careful research and deliberation. But money sitting as cash holdings for a year is not working – and is being eaten away in real terms by inflation.

Not only does investing earlier in the tax year remove some of the pressure to make a hasty decision up against a perceived deadline; it also means your hard-earned cash is put to work for longer. After all, as the saying goes “the early bird catches the worm” and in the case of a stocks and shares ISA there is a whole year of potential returns to be had – and potentially less tax paid as well.

Regular investing

Another option is to take the timing out of the process altogether by investing on a regular basis. Investing regularly takes the emotion out of investing: it is all too easy to have your investment decisions clouded by current sentiment or events that shouldn’t really matter if you are investing for the long term.

Investing regularly should also help to reduce market timing risk as you’ll end up with ‘pound cost averaging’, an average entry price that reflects some days when the market is up and others when it’s down.

Give your portfolio an annual MOT

The new tax year is also as good a time as any to take stock of your existing investment strategy at a time when a lot of the hype has quietened down. Rebalancing your portfolio and weeding out any underachievers should also help you identify where you should be targeting any new investments so that they will complement your overall strategy.

You can read our four steps to giving your portfolio an annual MOT.

It’s easy to invest early at Bestinvest

Savvy investors can save their money straightaway with our award-winning stocks and shares ISA. With no setup charges, tiered service fees to keep costs down and share dealing for just £4.95 per trade, you can save money while you save your money. You can choose your own investments or invest like a pro with one of our Ready-made Portfolios. We also pay £500 towards exit fees* your existing provider may charge you when you transfer your ISA to us. What are you waiting for? Make the most of the new tax year and get started today.

Got a few questions about how a stocks and shares ISA can work for you? Our friendly and knowledgeable team are a phone call away on 020 7189 9999 or you can book a free coaching session – all our coaches are qualified financial planners – at a time that suits you. 

[1] Source: Bestinvest / Lipper. Excel table with all data available on request.

[2] All these returns are gross of fees and based on a market benchmark. Actual returns would depend on the investment funds or trust chosen and would incur both fund and account fees.

*Terms and conditions apply.

Get insights and events via email

Receive the latest updates straight to your inbox.

By clicking the following button you are agreeing to our website conditions.

You may also like…