You are here: Home - Investing - Experienced Investor - News -

Should you invest ISA cash in a lump sum or each month for best returns?

Written by: Paloma Kubiak
With the new tax-year investors have a fresh ISA allowance, but is an ‘early bird’ better off than a last-minute stasher?

From 6 April 2017, ISA investors have an increased allowance of £20,000, up from the previous tax-year’s £15,240.

If you’re wondering whether it’s best to invest a lump sum at the beginning of the tax-year, drip feed your cash on a monthly basis or deposit your cash in an ISA product at the last minute, these calculations may help.

Analysis by Fidelity International found that an ‘early bird’ investor could be £8,500 better off than a last-minute ISA investor. Its calculations looked at the investing habits of three hypothetical ISA investors – ‘Early Shirley’, ‘Last-minute Lara’ and ‘Monthly Monty’ over the past decade.

Early Shirley invests her full investment ISA allowance into the FTSE All Share at the start of each year and has done so over the past ten years. By being an ISA early bird, she would have seen her original investment of £110,560 grow to £167,121.

Monthly Monty has also invested his full allowance in the FTSE All Share over the past decade. While he starts investing at the beginning of the tax-year, he prefers to split his full ISA allowance equally over twelve months. With this strategy, he would have seen his investment of £110,560 grow to £164,616.

Last Minute Lara waits until the very last day of the tax-year to invest her full ISA allowance into the FTSE All Share, and her £110,560 would be worth £158,551 after 10 years – that’s £8,570 less than the early bird investor or £6,065 for the monthly saver.

Maike Currie, investment director for personal investing at Fidelity International, said we all have a propensity to procrastinate, especially when it comes to making an investment but as the calculations show, it’s the early bird ISA investor who catches the best returns.

“By adopting Early Shirley’s strategy and investing at the start of the tax-year you give your money more time to grow and benefit from the magical power of compounding – that snowball effect of generating earnings on top of previous earnings.

“Of course, many people may find it hard to stump up a lump sum at the start of the tax year to put into their ISA. But don’t let this put you off. Adopting a monthly savings plan like Monthly Monty is an easy way of making smaller but regular contributions into your ISA savings pot. By drip feeding your money into the market, you will benefit from a process known as pound-cost averaging. This means that you buy more units in your investments when prices are low and fewer when prices are high which can help to cushion your portfolio from dips in the stock market.”

There are 0 Comment(s)

If you wish to comment without signing in, click your cursor in the top box and tick the 'Sign in as a guest' box at the bottom.

Are you a first-time buyer looking for a mortgage?

Look no further, get the help you need by searching for your perfect mortgage

Which ISA is right for you? A round up of the six products available in 2017

From cash to innovative finance to lifetime, here's our guide to the ISA products available to savers this yea...

Guide to buy-to-let tax changes

In late 2015, former Chancellor George Osborne announced a range of  tax measures aimed at landlords, which t...

A guide to switching energy provider

All you need to know about switching from one energy supplier to another.

What will happen if rates change

How your finances will be impacted by a rise in interest rates.

Regular Savings Calculator

Small regular contributions can build up nicely over time.

Online Savings Calculator

Work out how your online savings can build over time.

Five fund tips for a 0.25% interest rate environment

With interest rates stuck at a record low 0.25% and expectations rates could fall to close to zero, here are ...

Protecting family wealth: 10 tips for cutting inheritance tax

Inheritance tax - sometimes known as 'death tax' - can cause even more heartache for bereaved families. But th...

Travel insurance: Five tips to ensure a successful claim

Ahead of your summer holiday, it’s important to make sure you have the right level of travel cover or you co...

Investing your money

Alliance Trust Plc gives you smart insight into how to invest your money

Money Tips of the Week

Read previous post:
Fund focus: Hermes US SMID Equity

With the world’s attention on the US, investors will no doubt be looking for opportunities. We talk to Hermes US...