Is an ISA the key to enjoying more leisure time?
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The sooner you start saving, the more chance you have of taking things easy, says our financial columnist Peter Sharkey.
An email arrived this week asking whether the sender could call me instead of emailing 'reams of paper' and discuss his business proposition in a five minute conversation rather than via a dozen emails. This seemed infinitely preferable to having an unfamiliar name in my inbox, an idea to be encouraged as it injects human contact to our otherwise busy, almost exclusively electronic lives.
In the mid-1970s, a group of scientists concluded that one of the biggest problems people living in the 21st century would have was a surfeit of spare time. Leisure pursuits, they maintained, would account for most of our time; there would be nothing else to do as all of the world's ills would be resolved and we would co-exist in global harmony.
Such an engaging, stress-free vision of the future may one day come to pass, but until it does, most of us will concern ourselves with actually creating a little extra leisure time rather than worry about experiencing too much of it. Perhaps the best way of doing this is to build an investment portfolio capable of generating enough income which enables us to enjoy our spare time.
Which brings me on to ISAs.
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In the week before the 2018-19 tax year ended, your correspondent discovered he had an unused slice of ISA allowance to apportion before it was too late. The prospect of being taxed on income that could be saved (and had already been taxed once) prompted immediate action.
One online transfer later and a modest tranche of savings was placed beyond the state's covetous hands. When the transaction was completed, I was emailed a customer satisfaction form which asked what I planned doing with the money now sat in my ISA.
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I have absolutely no idea. Not yet, anyway, but the question made me wonder whether there was any benefit in leaving investing in an ISA until late in the tax year or was there greater merit in getting in as soon as the calendar has clicked past April 6.
Statistics suggest that ISA investors who make full use of their tax-free allowances could generate £915 more in returns over a 15-year period by investing before the end of April instead of waiting until the following March.
A difference of £915 over fifteen years is unlikely to bother most people, but depending upon where the initial ISA contribution is invested, early bird investors could reap significant dividends.
In many respects, this should not come as a surprise. Being invested for longer is the finest way of generating greater compounded returns, although it's also possible that markets could go into reverse, wiping out any 'early mover' advantage gained by the punctual investor.
So, is there any merit in investing early or, as I did last month, leave it until the last minute?
Most financial advisers would probably suggest their clients invest lump sums when they have them. Trying to 'time the market' is a proven method of losing money. In other words, if you have the money at the beginning of the tax year, invest it then. If not, wait until you do.
An even better option is to invest regularly, drip feeding money into an Investment ISA each month. This method has several benefits. Apart from creating a savings habit, it also tends to 'smooth' any market volatility you may encounter over the medium-to-long term and enables investors to benefit from a process known as 'pound cost averaging'. Essentially, this means investors buy fewer units when a fund price has risen and more when markets are down. It's an ideal method of investment whenever markets are uncertain or show volatile tendencies - which is often.
Ultimately, however, the principle investment objective is to make use of your tax-free allowances every tax year, irrespective of whether you're early or late activating them. The easiest of these to utilise is your ISA allowance, a benefit you either use or lose. The rules do not permit you to write to HMRC claiming your cheque was stuck in the post en route to your ISA provider. It might be a good excuse for some, but sadly, it won't wash with the taxman.
TAM Asset Management Ltd offer investors the opportunity to invest in a variety of Investment ISA portfolios from as little as £25 a month. For further details, please visit the MoneyMapp website.
THE WEEK IN NUMBERS
Disney's 'live-action reimagining' of Aladdin was the star of the holiday weekend. The movie, which stars Will Smith as Genie, took $207 million (£163 million) globally in its opening two days.
Flights from British airports were delayed, on average, by 16 minutes last year. The worst airport for punctuality was Stanstead where you could expect average delays of 25 minutes. The best airports from which to travel were Belfast and Liverpool where average delays were under 10 minutes.
The population of puffins on Lundy, the small island in the Bristol Channel, has risen from 13 birds to 375 over the past 17 years thanks to the efforts of the various nature groups to eradicate rats, the birds' biggest threat. Across Lundy, the population of birds has tripled over the same period, to 21,000.
For more financial advice, check out Peter Sharkey's regular column, The Week In Numbers.