Investors who can afford to invest at the start of the tax year rather than just before the deadline often significantly boost their long-term returns, say money experts.
Many people leave it to the last weeks – some even to the final minutes – to invest before the £20,000 annual Isa allowance resets at midnight on 5 April every year.
But research shows early birds beat both regular investors and the laggards, so it is worth considering changing your habits if you typically dawdle but have cash on hand at the start of the new tax year.
‘We see that many people rush to max out their Isa allowance at the end of a tax year, rather than at the beginning, missing out on almost a year of tax-efficient returns,’ says James Norton, head of retirement and investments at Vanguard.
But he adds: ‘The key is to make your money work for you as early as you can, in a way that fits your circumstances.
‘Ultimately doing something is almost always better than doing nothing – especially when the alternative is your cash being eroded by inflation.’
Money experts explore how using different approaches to investment timing can affect returns over the long term, and offer some tips for the new tax year.
New tax year: The £20,000 annual Isa allowance resets at midnight on 5 April every year
Investing £5k a year
AJ Bell looked at how much someone would have made investing £5,000 a year since Isas were launched in 1999 – in monthly instalments, or at the start or end of the tax year.
It based performance on a typical global fund, by using the total return of the IA Global sector average up until 5 April 2026.
Someone taking this approach would have paid £135,000 into their Isa over the years, with the regular investor putting in £416.67 every month to match the others. So how much would they have made?
Early-Bird Erin: £462,028
Drip-Feed Diana: £455,027
Last-Minute Linda: £437,035
Difference between early bird and laggard: £24,993.
Investing your full Isa allowance
Fidelity analysed the same three timing strategies when investing in an Isa over 25 years
It used the total return of the FTSE All Share to measure performance.
And it assumed someone used their maximum Isa allowance each year – this was initially £7,000, but the limit was hiked many times over the years and has been £20,000 since 2017/2018.
Paying in the full amount possible would have cost you £306,560 over 25 years.
Early Shirley: £777,803
Monthly Monty: £755,399
Last-Minute Lara: £735,646
Difference between early bird and laggard: £42,157
Investing tips for a new tax year
Camilla Esmund, senior manager at Interactive Investor, offers guidance on making the most of your new Isa allowance.
1. Let time do the heavy lifting
Starting early in the tax year gives your investments longer to grow and benefit from compounding, where your returns start generating their own returns over time.
Even modest contributions made earlier in the year have more time to build than money added later on.
2. Don’t let market noise knock you off course
There will always be uncertainty, whether that’s economic news, market volatility or global events. It can feel more comfortable to wait until things ‘settle,’ but markets rarely move in a straight line.
Unfortunately, market ups and downs are part and parcel of investing, but understandably they are not easy to stomach.
History shows us that markets can and do bounce back over the long-term.
3. Use regular investing
For those who feel cautious about investing a lump sum, regular investing can be a reassuring alternative.
By drip-feeding money into the market, this can help smooth out volatility, so it can be effective way to manage risk and build confidence over time.
It also helps build discipline. Setting up a monthly direct debit into a diversified Stocks & Shares Isa can make investing feel more manageable and remove the temptation to delay decisions.
4. Make the most of your Isa
The new tax year brings a fresh tax-free allowance for a Stocks and Shares ISA, a valuable way to protect your investments from income tax, dividend tax, and capital gains tax.
You don’t need to use the full allowance straight away. You can build towards it gradually across the year, depending on what you can afford.
5. Stay savvy on fees
Keep an eye on fees. We can’t control the markets, but we can control how much we pay to invest.
If you know what you are paying in fees and you’re confident that those fees are not eating into your pot, which should be compounding over time, you’re going to be keeping more of your money.
DIY INVESTING PLATFORMS
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