The Individual Savings Account (ISA) allowance is on hold for the 2016/17 tax year at £15,240.
New research by Fidelity International has found that early bird ISA investors were more than £8,000 better off than those who left it until the end of the tax year to make their investments.
Fidelity considered three scenarios with different timing of annual ISA investments.
Investor A was the lump sum early bird, who started investing at the beginning of each new tax year.
This investor would have added £109,320 to their ISA if they had made use of the full allowance in every tax year since 2005/06.
Their ISA pot would be worth £144,580 today; £8,316 more than Investor C, who leaves his or her ISA investment to the last minute each tax year and ended up with an ISA pot of £136,264.
By way of comparison, Investor B is the monthly saver, who splits their ISA payments equally each month and starts investing at the beginning of the new tax year.
They would also have invested a total of £109,320, but would have ended up with a final ISA pot today of £142,502.
The final ISA pot figures in all three examples were calculated based on the returns of the FTSE All Share Index over the past ten years. Past performance is of course no guide to future investment returns!
Investing early in the tax year has the clear advantages of allowing the money to remain invested for longer, benefiting for more compounding of investment returns in a long-term rising market.
When investment markets are more volatile, there are also advantages associated with regular investing, as you can benefit from ‘pound cost averaging’; buying investment units at lower prices when markets have temporarily fallen in value.
One non-financial benefit of being an early bird ISA investor is removing the stress and worry of end of tax year planning.
Do you think it pays to be an early ISA investor, or do you prefer to invest in your ISA regularly, or even leave things to the last minute?