New tax year investors net higher returns over the long-term
The new 2022/23 tax year is upon us which means savers have a renewed £20,000 ISA allowance.
And according to analysis, the earlier you invest in the new financial year, the better.
Investment platform Bestinvest revealed that in 17 of the 23 tax years (April to March) since ISAs were launched in 1999, the MSCI AC World Index of global equities delivered a positive return.
This is a 74% track record of gains delivered over the tax year, supporting the age-old wisdom that “it’s time in the market that counts”.
As an example, if an investor put £1,000 into the MSCI index on the first day of every tax year since 1999, they would be £4,388.57 or 5.5% better off than a last-minute investor who had deposited their cash on 5 April – the last day of the tax year – £84,404.73 versus £80,066.17.
In the last year alone, this could mean a difference of about £1,115.19 minus fees.
And as the ISA allowance is £20,000, Bestinvest’s calculations revealed the difference is even more stark.
The early bird investor’s pot would have accumulated £814,983.44 as at the end of March this year, £55,011.74 or 7.2% more than the last-minute investor’s £759,971.70.
The data also shows how they’ve benefitted from compound returns over the last two decades, despite periods of turbulence including the dot com bubble, the financial crisis and the more recent coronavirus pandemic.
However, Bestinvest warns that savers shouldn’t rush to invest without research and preparation.
Jason Hollands, managing director at Bestinvest, said it’s important to review your portfolio, set your goals and choose investments that suit your time horizon and tolerance of risk.
“Not only does investing earlier in the tax year remove some of the pressure to make a hasty decision up against a perceived deadline; it also means your hard-earned cash is put to work for longer.
“After all, as the saying goes “the early bird catches the worm” and in the case of a stocks and shares ISA there is a whole year of potential returns to be had – and potentially less tax paid as well.
“Another option is to take the timing out of the process altogether by investing on a regular basis. Investing regularly takes the emotion out of investing: it is all too easy to have your investment decisions clouded by current sentiment or events that shouldn’t really matter if you are investing for the long-term.
“Investing regularly should also help to reduce market timing risk as you’ll end up with ‘pound cost averaging’, an average entry price that reflects some days when the market is up and others when it was down,” he said.