Isa deadline Make most of tax-free savings before financial year end | Personal Finance | Finance


Every year sees a last-minute panic as Britons dash to use their Isa allowance before the annual deadline at midnight on April 5.

However, research shows that leaving it late may be a costly mistake.

By investing at the start of the year rather than the end, your money has 12 months longer to grow in value, as well as earn dividends, and can be worth thousands of pounds more as a result.

So rather than waiting until next year before deciding where to invest your 2018/19 Isa allowance, you should be taking action today.

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Somebody who invested their full Isa allowance at the start of each tax year for the last decade could have almost £20,000 more than someone who waited to the last minute, according to research from Hargreaves Lansdown.

If they had put their money into the Legal & General International Index Trust they would now have £221,500, while last-minute investors would have just £202,500, or £19,000 less.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said the earlier you use your Isa allowance, the better: “Your investments are sheltered from tax straightaway and have longer to grow. Over the long term this can have an impressive impact on returns.”

Early bird investors gain up to an extra year of dividends and potential growth in the stock market, compared to those who leave it until the last minute.

Right now, the FTSE 100 yields 4.1 per cent, which on a £20,000 investment would generate £820 in dividends alone over 12 months. “The larger allowance makes investing early more rewarding than ever,” Coles said.

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If you are looking to invest in a stocks and shares Isa, Coles recommended four funds with differing goals and strategies.

Pyrford Global Total Return invests in a blend of shares, government bonds and cash and aims to produce long-term growth with lower volatility than the stock market, while EdenTree Higher Income targets income.

M&G Global Macro Bond offers balance as a lower risk bond fund, while Legal & General International Index gives you long-term exposure to global markets with a low annual charge of just 0.08 per cent.

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If investing early in the tax year, you can also minimise your exposure to stock market volatility, by setting up a regular savings plan rather than pumping in a single lump sum once a year.

Fidelity associate director for personal investing Ed Monk said: “Not everyone has large lump sums of cash to hand at the start of each tax year, but you can still get started early by adopting a monthly savings plan, making smaller but regular contributions into your Isa savings pot.”

Somebody who invested their full Isa allowance in the FTSE All-Share Index on a monthly basis would have seen their total investment of £123,560 grow to £176,962 after 10 years. Monk said: “By comparison, those who left it until the last day of each tax year would have £170,128, or £6,834 less.”

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Tom Anderson, senior investment manager at wealth advisers Killik & Co, said investing every month should smooth out what could be a volatile year for stock markets: “You reduce risk and turn volatility to your advantage, because your monthly contribution buys more stock when markets have dipped.”

It suits you for stock markets to fall when you put money in because you will pick up more stock as a result, turbo-charging your returns when markets recover.

“Ultimately it is time in the market, rather than market timing, that will build your wealth,” Anderson added.



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