It’s that time of year when people rush to make the most of their annual ISA allowance before the tax year ends on 5 April.

Many people leave this task right until to the last minute. After all, there’s nothing like a deadline to stimulate action. However, a rarer breed of investors will be limbering up too, in anticipation not of the end of the tax year, but of the start of a new one.

Some investors unflinchingly invest their ISA allowance as soon as it’s available every year, on 6 April. Clearly this means your money is protected from tax from the outset, but it also means you stand to have a bigger ISA pot in the final analysis, because your money is at work in the market for longer.

The table in this article compares the fortunes of early bird ISA investors, who invest on the first day of each tax year, with those of last-minute ISA investors, who invest on the last day of the same tax year.

In each case the early bird and the last-minute ISA investor invest the same amount in total, it’s simply the timing of their investment which differs. The difference it makes is quite startling, and in each case it’s the early bird ISA investor who comes out on top.

A £3,000 annual ISA contribution invested in a global equity fund on the first day of each tax year since 1999 would now be worth £200,373. By contrast that same £3,000 invested on the last day of each tax year would now be worth £191,102, over £9,000 less.

You might think that this is just the luck of the draw, because of the 1999 dotcom boom. It’s true that the early bird’s returns were boosted by a 29% rise in the value of the typical global equity fund between 6 April 1999 and 5 April 2000. In other words, the early bird had a big head start.

But that’s only part of the picture. The global financial crisis was a much less auspicious time to be making an ISA investment. Early bird ISA investors would have put their money in the market on 6 April 2008 and had to watch it fall by 23% by 5 April 2009, when the last-minute ISA investor swoops in with their contribution, buying shares at much lower prices.

Yet the early bird ISA investor still comes up smelling of roses, with a final ISA value of £94,443 compared to £88,044 in the ISA of the last-minute investor. That’s because it’s not just performance in that first year that matters in the long run.

That early contribution will also be compounded in each year after that, and even if the early bird ISA investor suffers a bad first year, the market recovers in time and that early contribution eventually breaks even, and then makes it into profit.

WATCH OUT FOR DIVIDEND AND CGT ALLOWANCE CHANGES

So, if you’re rushing about to make a last-minute ISA contribution right now, you might also consider contributing money in the new tax year too. With the dividend allowance being cut from £2,000 to £1,000 from 6 April, and the capital gains tax allowance being cut from £12,300 to £6,000 too, it also makes sense to wrap investments in a tax shelter sooner rather than later.

You may not have the capital available to make two contributions at once. A halfway house might be to set up a regular ISA saving plan for next year, which automatically takes cash from your bank account each month by direct debit and invests it according to your instructions. That way at least some of your money gets into the market sooner, and the regular nature of your investment also makes for a smoother ride.

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