£9,271! Why early bird Stocks and Shares ISA investors are ‘wiser’

Buying UK shares in a Stocks and Shares ISA can be a great way to build wealth. It allows people to invest £20,000 in any tax year without having to pay a cent to the taxman.

These tax benefits can have a significant impact on an investor’s long-term wealth. It also means there is a clamor among many ISA investors to max out their allowance before the year ends in early April.

But research from AJ Bell suggest ISA users take the investment strategy back to home. It shows that the investment in the beginning tax year can generate more.

Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content in this article is provided for informational purposes only. It is not intended to be, nor does it become, any form of tax advice. Readers are responsible for conducting their own due diligence and seeking professional advice before making any investment decisions.

£9,271!

AJ Bell reckons the number of people investing £3,000 a year in global equity funds will be made since 1999. And concludes that “it’s the early bird ISA investors who come out on top“.

Some investors unflinchingly invest their ISA allowance as soon as it becomes available every year, on 6 April. Clearly this means that the money is protected from tax from the outset, but it also means that you stand to have a larger ISA pot in the Final analysis because the money is at work in the market for more.

AJ Bell

The data shows that a person who invests £3,000 on the first day of each tax year will earn £200,373 today. By comparison, a person who invests a few thousand pounds on the last day of the year will earn £191,102.

That’s a difference of £9,271.

“The smell of roses”

Well, those who invested in early 1999 rather than later in the tax year will benefit from the dotcom boom. A typical global equity fund rose 29% in value between April 6, 1999 and April 5, 2000, notes AJ Bell.

But the data shows that those who invested earlier can also get more returns, despite the financial crisis.

AJ Bell notes, for example, that an ISA investor who invested £3,000 in the fund on 6 April 2008 would have seen the value of the money fall by 23% at the end of that tax year.

Still, research shows that early bird ISA investors “still comes up smell of roses“. He will earn £94,443 today, which is £88,044 higher than those who invested on April 5, 2009.

Here’s what I’m doing right now

Of course, the past does not guarantee future performance. However, history shows that the longer you invest in the stock market, the better your chances of making a profit.

In the long-term stock market tends to rise. So, even with a bad first year, an investor’s portfolio can recover quickly. And, of course, the longer people invest in assets like UK stocks, the more money they can make through the magic of compounding.

This is why I plan to continue investing in my own ISA despite the uncertain macroeconomic landscape. Like the early investors, I have a great opportunity to increase my income by taking advantage of my current allowance.