It’s about when you do it as much as anything (Image: Bibek Raj Giri via Getty Images)
Each tax year, thousands of investors engage in what might appear to be an almost obsessive ritual. On the morning of April 6, the very first day of the new tax year, they transfer funds into their ISA.
This isn’t about predicting stock market movements or attempting to second-guess the economy. Rather, they are seeking to make the most of one of the most precious resources in investing: time.
Paul Denley, CEO at London-based Oakham Wealth Management, said many seasoned investors understood that when it came to building long-term wealth, the timing of your investment could be almost as significant as the investment itself.
He said: “Many people focus on finding the perfect investment, but often the bigger advantage comes from giving your money as much time as possible to grow. The earlier money enters an ISA, the longer it has to benefit from tax-free compounding.”
£20,000 ISA tax-free allowance from HMRC
Paul Denley (Image: Newspage)
Every UK adult is currently permitted to invest up to £20,000 into an ISA during each tax year. This allowance is particularly valuable as any income or capital growth generated within the ISA is protected from HMRC taxation. Crucially, unused ISA allowances cannot be carried forward.
Mr Denley said: “The ISA allowance is effectively a use-it-or-lose-it opportunity. Once the tax year ends, any unused allowance disappears forever, which is why many investors make funding their ISA a priority.”
There’s another advantage to investing early that frequently gets overlooked. A £20,000 ISA contribution made on April 6 could deliver robust growth, typically exceeding £1,000, throughout the subsequent year. The identical contribution made at the tax year’s conclusion would forfeit nearly all of that growth.
Mr Denley, who emphasised that markets fluctuate but over the long term the direction is generally upwards, said: “If somebody invests their full allowance on the first day of the tax year rather than waiting until the final weeks, they could potentially gain on average over £1,000 of additional growth over that period. That may not sound life-changing in one year, but over decades, the difference can become substantial.”
Timing is everything for investing
Indeed, throughout a 30-year investing lifetime, regularly investing at the beginning rather than the conclusion of each tax year could add well over £100,000 to an investor’s portfolio, assuming identical contributions and returns. Importantly, Mr Denley emphasised this wasn’t about attempting to time markets.
“This isn’t a market prediction strategy,” he said. “It is simply recognising that time invested has historically mattered far more than trying to identify the perfect moment to invest.”
Naturally, not everyone has £20,000 available on April 6 every year. For numerous people, investing monthly remains the most practical approach.
For those expecting an annual bonus, inheritance, business sale proceeds, or holding cash earmarked for investment, however, Mr Denley said delaying until March could mean sacrificing valuable tax-free growth.
He added: “Successful investing is often portrayed as being about forecasting markets. In reality, some of the best investing decisions are surprisingly simple. Sometimes it’s not about beating the market. It’s about making better use of the calendar.”