Stocks and Shares ISA Returns: Data Shows You Should Invest Your ISA Allowance Early

As March begins, anyone who reads, or even occasionally browses, the business and personal finance pages of newspapers and online media will have noticed the stream of coverage and headlines around ISAs and SIPPs. Ideas, tips for investment choices, strategies and rates comparison between ISA and SIPP providers abound. The reason is simply that it’s human nature to procrastinate. Data from online stock brokers and investment platforms shows that the majority of their clients open ISAs and SIPPs, or use up the majority of their allowances at the last minute. Based on that, and perfectly sensibly, they have a big marketing push on ISA and SIPPs that crescendos over the two months leading up to the early April deadline. That in turn leads to a ramp up in coverage by media keen to benefit, also perfectly sensibly, from that marketing spend.

The best advice is that the optimum approach to paying into an ISA or SIPP is to ‘drip-feed’ instalments monthly, or in some other regular fashion, over the course of the year. This avoids the pitfalls of attempting to time the market. If investments are spread over the year at least a chunk of them will benefit from catching the cheapest part of the year, which boosts subsequent returns.

However, recent research published by asset manager Architas shows that if it’s a straight choice between making a lump sum investment at the beginning of the tax year or the end, investors would be better off weighting their ISA and SIPP payments as much as practically possible towards the beginning. The FTSE All-Share Index having risen over the course of 14 of the last 20 tax years so on average, investing early would have meant benefiting from that rise. Over the past 10 years, investing the full ISA allowance in the index on the first day of the tax year would have resulted in a portfolio value £6,627 higher than the same investment made on the last day. The final total would have been £165,161 against £158,534.

Of all the beginner investment tips out there, drip-feeding ISA investments in an index, or front-loading them, is perhaps the easiest to achieve. An added bonus is that avoiding a last minute rush to meet the deadline avoids making potentially poor rushed decisions. So this year, if experience dictates you are unlikely to make regular ‘drip feed’ investments, consider using up your ISA or SIPP allowance now rather than being spurred into action by the last minute deluge of media coverage!