Every tax year, thousands of investors do something that looks almost obsessive. On the morning of April 6, which is the first day of the tax year, they transfer money into their ISA.
Why timing matters for ISAs
They are not trying to predict the stock market or second-guess the economy. Instead, they are trying to maximise one of the most valuable resources in investing: time.
Paul Denley, CEO at London-based Oakham Wealth Management, said many experienced investors understood that when it comes to long-term wealth building, when you invest can be almost as important as what you invest in.
He said: “Many people focus on finding the perfect investment, but often the bigger advantage comes from giving your money as much time as possible to grow. The earlier money enters an ISA, the longer it has to benefit from tax-free compounding.”
£20,000 ISA tax-free allowance from HMRC
Every UK adult can currently invest up to £20,000 into an ISA each tax year. The allowance is valuable because any income or capital growth generated within the ISA is sheltered from being taxed by HMRC. Crucially, unused ISA allowances cannot be carried forward.
Mr Denley said: “The ISA allowance is effectively a use-it-or-lose-it opportunity. Once the tax year ends, any unused allowance disappears forever, which is why many investors make funding their ISA a priority.”
There is another benefit to investing early that often goes unnoticed. A £20,000 ISA contribution made on April 6 could generate strong growth, on average upwards of £1,000, over the following year. The same contribution made at the end of the tax year would miss out on almost all of that growth.
The power of early investing
Mr Denley, who stressed that markets go up and down but over the long term the trajectory is generally upwards, said: “If somebody invests their full allowance on the first day of the tax year rather than waiting until the final weeks, they could potentially gain on average over £1,000 of additional growth over that period. That may not sound life-changing in one year, but over decades, the difference can become substantial.”
Indeed, over a 30-year investing lifetime, consistently investing at the start rather than the end of each tax year could add well over £100,000 to an investor's portfolio, assuming identical contributions and returns. Importantly, Mr Denley stressed this was not about trying to time markets.
“This isn't a market prediction strategy,” he said. “It is simply recognising that time invested has historically mattered far more than trying to identify the perfect moment to invest.”
Practical considerations for investors
Of course, not everyone has £20,000 available on April 6 every year. For many people, investing monthly remains the most practical approach.
However, for those receiving an annual bonus, inheritance, business sale proceeds or holding cash ready to invest, Mr Denley said delaying until March could mean sacrificing valuable tax-free growth.
He added: “Successful investing is often portrayed as being about forecasting markets. In reality, some of the best investing decisions are surprisingly simple. Sometimes it's not about beating the market. It's about making better use of the calendar.”
