Early bird vs last minute ISA investors


Stocks and shares ISA savers can broadly be split into three groups – regular savers, early birds, and last minute investors. Right now, last minute ISA investors will be contemplating what to do with this year’s ISA allowance, while at the same time, early birds will be waiting for 6th April to roll around, so they can fill up next year’s ISA allowance. Historical performance shows that of these two approaches, generally early investing generates some extra bang for your ISA buck, because you are invested in the market for that bit longer.

Based on a £1,000 annual contribution since ISAs were launched in 1999, both early birds and last minute ISA investors have generated attractive returns on their savings if invested in the typical global stock market fund. (Or more technically, the IA Global Sector average). Last minute ISA investors would have turned £23,000 in contributions into £62,240 over that time, but early birds would now be sitting on £65,290 in their ISA. That’s £3,050 more, despite saving up exactly the same amount.

Of course, there are some tax years when the market falls, and you might be able to buy cheaper shares by waiting till the end of the tax year. But the global stockmarket has risen in 15 of the 23 tax years since ISAs were introduced in 1999. In other words, the years when the market has risen outnumbers those in which it has fallen by almost two to one, so as a regular strategy, early bird ISA investors can be expected to come out on top of last minute ISA investors in the long term.

So far this tax year, the global stock market has risen by over 8%, which will already have boosted the value of early bird ISAs and will be compounded in years to come. That’s nothing compared to the 43% rise in the market last tax year however, which put early bird ISA investors at a huge advantage, even though they would have had to be brave to invest at such a critical and uncertain point in the pandemic.

There is a third way to invest your ISA pursued by many savers, which is to do so monthly. This approach would have turned £23,000 of ISA savings since 1999 into £64,100 today, a bit less than an early bird but £1,860 ahead of a last minute ISA investor. Again, the same principle is at play, which is that the longer your money is in the market, the more time it has to grow. Regular saving in an ISA simply transfers money from your bank account each month, so it’s totally hassle-free, and takes all of the emotion out of investing, which makes it a simple and smart way to invest.

Early bird versus late bird versus regular saver

The following figures show the current value of a £1,000 annual ISA contribution made since 1999 on the first day of each tax year (early birds), on the last day (last minute ISA investors), or spread across twelve regular monthly payments of £83.33 each year (regular savers). Values are shown as at 16th March 2022, and the final contribution of last minute ISA investors for the 2021/22 tax year is assumed to take place on this date, i.e. it is presumed to be worth £1,000 with no investment growth or losses. Returns reflect the performance of the Investment Association Global Sector average.

Type of ISA investor Amount saved Current value
Early bird £23,000 £65,290
Last minute £23,000 £62,240
Regular saver £23,000 £64,100

Source: AJ Bell, FE, Morningstar, total return in GBP to 16th March 2022

The following table shows the price return, not including dividends, and in pounds sterling, of the global stock market each tax year since ISAs were introduced.

Tax year beginning MSCI World Price Return %
06/04/1999 17.9
06/04/2000 -16.2
06/04/2001 -7.1
06/04/2002 -28.1
06/04/2003 19.5
06/04/2004 3.2
06/04/2005 26.6
06/04/2006 0.9
06/04/2007 -4.3
06/04/2008 -22.8
06/04/2009 37.8
06/04/2010 3.7
06/04/2011 -1.3
06/04/2012 13.4
06/04/2013 9.3
06/04/2014 16.8
06/04/2015 -3.0
06/04/2016 29.2
06/04/2017 0.5
06/04/2018 11.1
06/04/2019 -12.3
06/04/2020 42.7
06/04/2021 8.4

Source: Morningstar, capital return in GBP, dividends not included

These articles are for information purposes only and are not a personal recommendation or advice. How you're taxed will depend on your circumstances, and tax rules can change. ISA rules apply. Remember that the value of investments can change, and you could lose money as well as make it. Past performance is not a guide to future performance and some investments need to be held for the long term.

ajbell_laith_khalaf's picture
Written by:
Laith Khalaf

Laith Khalaf started his career in 2001, after studying philosophy at Cambridge University. He’s worked in a variety of roles across pensions and investments, covering both the DIY and the advised sides of the business. In 2007, he began to focus on research and analysis, and has since become a leading industry commentator, as well as a regular contributor to the financial pages of the national press. He’s a frequent guest on TV and radio, and for several years provided daily business bulletins on LBC.