Britons miss out on maximising ISA allowance by investing too late
UK consumers who delay investing in their ISA allowance until the end of the tax year could significantly reduce their potential for long term growth, analysts have warned.
Investors who delay investing in stocks and shares ISAs have missed out on as much as £123,000 in compound growth over the past 20 years, according to analysis by wealth management group Bowmore.
Failing to invest in a stocks and shares ISA, which allows up to £20,000 tax-free to be invested a year, creates limited exposure to the stock market, and causes investors to lose out on “substantial long term gains”.
Bowmore’s analysis comes in the wake of Chancellor Rachel Reeves’ Mansion House speech, where she announced plans to work with the sector and the financial regulator to encourage more consumers to invest in the stock market rather than cash ISAs.
Don’t delay invest today
Mark Incledon, Chief Executive Officer at Bowmore Wealth Group, said, “Investors who delay their contributions could miss out on substantial gains in the long term. Investors should focus on spending time in the market, and avoid trying to time the market.”
“If you expect that the stock exchange is typically going to rise over time, then research suggests that you want to invest a lump sum as soon in the year as possible.”
According to calculations by Bowmore, an individual investing the full allowance in a stocks and shares ISA at the start of the tax year, would have built up £1.47m over 20 years. In contrast a consumer investing the same amount at the end of the tax year would have accumulated over £130,000 less, with £1.34m.
Despite the potential growth investing early can bring, many consumers forget to invest in their ISA until the deadline for the end of the tax year looms.
“By investing early, even modest gains can begin generating strong returns of their own, accelerating long-term wealth growth.” Incledon added.
“Those who invest late are much less likely to enjoy strong returns from short-term market growth. By contrast, early and proactive investors take advantage of those months of return, purely because they have more invested.”
Smooth sailing
Similarly, by spreading investments over the course of the year, consumers are more likely to “smooth out volatility” unlike investors who must deal with the risk of only investing during market upticks and dips.
“Missing out on gains when markets rise makes it harder to build a cushion for market downturns.”
“In the end, this should serve as a wake-up call for investors, it pays to get in earlier.” Incledon said.