By the time you read this article the deadline to make your 2011/12 ISA investment will have already passed and if you didn’t take advantage of your tax free allowance then that opportunity has gone forever. There are a whole host of reasons why, without fail, this happens each year. It could be the bewildering choice of ISA providers all vying for your attention, having the funds available to invest, or perhaps you just clean forgot.
One thing it does highlight is that when presented with a time limit our natural tendency is leave everything to the last minute but provided we meet that final deadline then we feel that we have not lost out. The investment companies even pander to this trait. Just compare the amount of ISA marketing that floods the pages of the press each February and March with the rest of the year.
Early ISA Investment Benefits
If you have the funds available to invest and intend making use of your ISA allowance it therefore seems bizarre that you would leave everything to the last minute and miss out on the opportunity to be invested for the maximum possible period. It got us thinking what benefit, if any, would have been gained over the past few years from making an ISA investment at the start of the tax year rather than the end.
For the purpose of the exercise we assumed that 5 identical investments were made, one each tax year. In an ideal world you would determine the amount of risk you are comfortable with and be active with your sectors and funds. It’s not practical to try and guess what fund choices would have been made in that 5 year period so we have looked at a variety of indices and sector averages as a proxy for the main equity and fixed interest markets.
Bearing in mind the volatile investment conditions we have seen over the past 5 years the results were quite revealing. By investing at the start of the tax year the return on the MSCI World (Equity) Index was 12% higher than if you had left it until the end of March the following year. The FTSE 100 was even higher with a 21% better return. Emerging markets was an incredible 60% higher and even the average Sterling Corporate Bond fund was 24.5% better off.
Break the ‘last minute’ habit in 2012/13 and make that contribution early. It could be worth your while.