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Buying UK shares in a Stocks and Shares ISA can be a great way to build wealth. It allows someone to invest £20,000 in any tax year without having to pay a penny to the tax collector.
Such tax advantages 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 allocation before the end of the year in early April.
However, the investigation of aj bell suggest that ISA users are updating their investment strategy. It shows that those who invest at first of the fiscal year can generate much higher returns.
Please note that tax treatment depends on each client’s individual circumstances and may be subject to change in the future. The content of this article is provided for informational purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and obtaining professional advice before making any investment decisions.
£9,271!
AJ Bell considered how much someone who invested £3,000 every year in a global stock fund since 1999 would have earned. He concludes that “it is the early riser investor of ISA who wins”.
Some investors purposefully invest their ISA allocation as soon as it becomes available each year, on April 6th. Clearly, this means that your money is protected from taxes from the start, but it also means that you will have a bigger ISA pot in the final analysis because your money will be on the market for longer.
aj bell
The data shows that someone who invested £3,000 on the first day of each tax year would have earned £200,373 today. By comparison, someone who invested those few thousand pounds on the last day of the year would have earned £191,102.
That’s a difference of £9,271.
“Smell of roses”
Granted, those who invested in early 1999 instead of after that fiscal year would have benefited from the dot-com boom. The typical global equity fund rose 29% in value between April 6, 1999, and April 5, 2000, notes AJ Bell.
However, the data shows that those who invest earlier can also earn higher returns, even when financial crises strike.
AJ Bell points out, for example, that ISA investors who invested £3,000 in the ISA fund on April 6, 2008 would have seen the value of their money fall by 23% by the end of that fiscal year.
Still, research shows that early ISA investor “still comes out smelling like roses”. They would have earned £94,443 today, more than the £88,044 that someone who invested on April 5, 2009 could have generated.
This is what I’m doing now
Of course, the past is not a guarantee of future performance. However, history shows us that the longer you invest in the stock market, the greater the chances of earning superior returns.
In the long term, stock markets tend to rise. So even if there is a bad first year, an investor’s portfolio can recover strongly over time. And of course, the longer someone invests in assets like UK stocks, the more money they can earn through the miracle of compounding.
That is why I plan to continue investing in my own ISA despite the uncertain macroeconomic outlook. Like those early-bird investors, I believe I have a great opportunity to significantly increase my profits using my allocation today.
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