Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.

Many investors reckon they’ve come up with the perfect strategy for investing the annual £20,000 ISA allowance. In truth, when it comes to investing, there’s no ‘one size fits all’ approach. Ultimately, the most successful investors are those who’ve worked out what works best for them.

For the ‘early bird’ investors, the start of the new tax year is the one day of the year they think about their investments. When the 6th April rolls around, it’s time for them to invest their entire £20,000 allowance at once. Some really don’t mess around - one very organised Fidelity customer used their full allowance within the first ten minutes of the new tax year, at 00:09.

Adopting this approach last year during all the pandemic volatility would have felt particularly tough, but I’m sure many early birds will be looking back at their portfolios now with glee.

But investing in retrospect is easy. Back in April 2020, no early bird would have known for certain that markets were going to bounce back like they did. What if they had fallen instead?

The critical benefit of investing early is not timing, it’s time. It simply means you have your money in the market for longer, which means you allow greater time to compound any growth. Compound growth is so powerful that even a small sum, given many years to grow, will outpace larger sums of money invested years later.

That’s borne out in the numbers. Our calculations show that had you invested your full ISA allowance into the FTSE All Share at the start of the past 10 tax years, you would be over £12,000 better off now than someone who had rushed to invest right at the very end of every tax year, and over £7,000 better than someone who contributed monthly.1 Please remember past performance is not a reliable indicator of future returns.

But there’s also an important psychological element to contend with. Early bird investing is great if you can motivate yourself to invest a large sum of money all at once. But many of us can’t. For every early bird, there are plenty of people who had all the right intentions at the start of the tax year but still ended up leaving it to the last minute. That’s the worst of both worlds - not only do you minimise your time in the market, you also force yourself into rushed decisions.

Personally, I know I’d find the prospect of one large contribution like that all a bit stressful. That’s just how I am. I’ve been planning to do up the kitchen for about six months now, and I still can’t face it. It seems like such a big task that I don’t know where to start.

A better approach to sorting my kitchen might have been to split it up into manageable chunks. So, one weekend, settle on a layout. The next, start on the painting. Then sort the surfaces. And so on.

The equivalent when it comes to investing is a monthly savings plan. Monthly savings make the whole thing look a lot more manageable. You can still use up your entire allowance, but it’s spread over the tax year. It also means you diminish the timing risk associated with one lump sum contribution. With regular contributions, you’re likely to capture market highs and lows so that they even out over time.

Monthly savings plans also grant you greater flexibility. Like the early bird, you can choose not to give a single thought to your investments after you’ve set up your plan, safe in the knowledge that you’re automatically topping up your ISA every month. Or if you want, you can change your plan throughout the year, topping it up or switching your allocations whenever you fancy.

If you find that you’ve used up all your allowance before 6 April comes round next year, then there are other ways you can invest your money. Consider topping up your pension with a Fidelity Self Invested Personal Pension (SIPP). With your 2021/22 tax year pension allowance you can invest up to £40,000, capped at the amount you earn if this is less. Like your ISA, you’re able to set up a monthly savings plan for your SIPP, this time from as little as £20.

An alternative way to invest is through a Junior ISA (JISA), on behalf of your children or grandchildren. The 2021/22 allowance for JISA contributions is £9,000.

Whether you intend to invest more or less than the full ISA allowance this year, the best approach ultimately comes down to knowing what works best for you. You may want to be an early bird investor, but if that’s just not you, you may prefer to invest monthly. Or you might like getting it all done and dusted at once. Either way, it’s better than leaving it until the last minute.

Open an ISA

Open a SIPP

Find out more about saving regularly

Five year performance

As at 31 March
2016-2017 2017-2018 2018-2019 2019-2020 2020-2021
FTSE All-Share 22.0 1.2 6.4 -18.5 26.7

Past performance is not a reliable indicator of future returns

Source: Refinitiv total returns as at 31.3.21, with net income reinvested in local currency.


1 For illustrative purposes only. Based on FTSE All-Share data between 06.04.2011 - 06.04.2021 excluding charges and fees. Please note that any product charges for an investment would reduce the amounts shown. Total returns in GBP. Basis: bid-bid with income reinvested. Fidelity has been licensed by FTSE International Limited to use the name FTSE All-Share Index.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55. Withdrawals from a Junior ISA will not be possible until the child reaches age 18. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to a Fidelity adviser or an authorised financial adviser of your choice.

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