Why you should invest early in the tax year

Data shows that those who invest regularly and at the start of the year can be thousands of pounds better off than those who wait until the end. 

We’re about a month into the tax year, and there’s no time like now to make sure your investments are working as hard for you as they possibly can to save you from having to make last minute decisions later down the line. 

A good way to do this is by making sure you invest as much as possible early on in the tax year. 

Investing early compounds your returns

Data from InvestEngine shows that those who regularly invest early in the tax year could be over £36,000 better off than those who put it off until the end of the tax year. 

Analysis showed that someone who maxed out a stocks and shares ISA allowance every year since their inception in 1999 could have over £844,000 saved up, compared to over £808,000 if they had invested at the end. 

Of course, not everybody has the ability to max out their ISA pot every year. But the data also shows that those who invested £1,000 at the start of the year could have earned over £5,000 more than those who invested at the end of the year across that same period. 

“Investing in your stocks and shares ISA earlier in the tax year increases the potential for higher returns – particularly in the long-run,” says Goncalo Machado, Investment Manager at InvestEngine. “You’ll often hear seasoned investors say that investment growth isn’t about ‘timing the market’ but ‘time in the market’. 

“To make the most of your stocks and shares ISA, you should consider front-loading your contributions to give your money as much time to grow as possible. If you contribute, say, £1,000 at the start of the tax year, then that £1,000 will have the next 11 months to grow, compared to only a month if you added it to your ISA in March at the end of the tax year,” he added. 

Get ahead of ISA reforms 

Putting your money to work sooner makes sense. Investments can and will go up and down, but the longer your money has to make gains, the longer it has to recover from any potential downturn. 

There’s also plenty of speculation about ISA reforms. Making the most out of the current £20,000 allowance is wise for many reasons, but especially if changes are going to be made. 

“Savers are under increasing pressure. The UK tax burden is estimated to be at the highest since the Second World War and with most personal allowances on pause until at least 2028, an increasing proportion of an individual’s income gets swallowed up by tax as their earnings increase… Plus, ‘reforms’ to ISAs are also on the cards,” says Alice Haine, personal finance analyst at Bestinvest. 

“As trailed by the Government in the Spring Statement, Chancellor Rachel Reeves is mulling how to achieve the right balance right ‘between cash and equities’ to earn better returns for savers. This means savers might want to get ahead to ensure they can maximise existing rules while they are still in place.”