As a UK resident, one of the best ways to invest money is via an ISA. This is a tax wrapper that shelters your investments from capital gains tax and tax on dividends. Every year tax year, each individual gets £15,240 they could put in their ISA. Whilst many investors recognise the benefits of investing in an ISA, there are still some misconceptions out there. One of the biggest misconceptions is that the end of the tax year, March, is the best time to invest you money in an ISA. This misconception has arisen due to the the media and brokerage companies refer to March as the ‘ISA season’. But the statistics show that the best time to open a stocks and shares ISA is in fact at the beginning of the tax year, in April.
By opening an ISA at the beginning of the tax year, you are sheltering your investments from tax straight away whilst also giving your money a longer time period to compound. We all know that time is the friend of an investor. By investing in an ISA at the beginning of the tax year as opposed to the end of it, you can get higher returns for the same amount of risk.
To illustrate how you get better returns on your ISA by simply investing the money at the beginning of the year, let’s look at what would have happened if you invested your money with Britain’s Best Fund Manager, Neil Woodford, since ISAs were introduced in 1999.
If you invested the full allowance of £ 151,353 at the beginning of the year, your portfolio would be worth £379,353. The gain you have made would be £228,000
If you invested the full allowance of £151,353 at the end of the year, your portfolio would be worth £345,098. In this case, the gain would be £193,745.
Looking at the above figures, you can see that by investing in an ISA at the beginning of the year, you get an additional gain of £34,225. By giving your money more time in the market and letting the power of compounding returns take effect, you too can make more money for the same amount of risk.