There is often one month of the year when a lot of people are busy thinking about the idea of a Stocks and Shares ISA — April.
That is because an ISA is a form of tax wrapper for investments. With the end of one tax year and beginning of another in the first week of April, there is often a rush of investors trying to use up their old contribution limit or start a new Stocks and Shares ISA.
But once that frenzy of activity in the first half of April drops off, a lot of would-be investors do not think about setting up an ISA until the following April.
I think it can make sense for investors to set one up at any time of year, rather than waiting for the annual deadline. Take May as an example. Here is why, if I had money to invest today, I would put it to work in a Stocks and Shares ISA immediately rather than waiting.
Regular investing
Rather than investing a lump sum of £20,000, a lot of people try to use their annual Stocks and Shares ISA by making regular contributions over the course of the year. That could be regular contributions that add up to £20,000 over the course of the year, or more modest deposits based on their own financial circumstances.
If saving regularly, the earlier I start in the tax year then the more months (or weeks) I have left to make regular contributions. That could help me save more — or the same amount while making smaller regular contributions — compared to starting later in the year.
Dividend opportunity
Imagine that I invest a £20K ISA in shares that have a yield of around 8% (my own holding in British American Tobacco is an example of such a share at the moment). That ought to generate £1,600 in dividend income for me annually.
If I invested now, I might be able to get most or all of that income in the coming 12 months, depending on the timing of dividends paid by companies in my ISA. British American, for example, pays out quarterly.
But if I wait until next April to invest, I could miss almost a whole year’s worth of dividends that would otherwise come my way.
Time for quality decision-making
I understand the usual rush many people have to put money into a Stocks and Shares ISA before the annual deadline.
But that is a deadline for contributions, not for investing. So it is possible to park the money in an ISA without deciding immediately which shares to buy.
Nonetheless, I am keen to avoid the trap of rushing to set up a Stocks and Shares ISA in April without doing my homework. That includes the shares to buy, but also looking at different ISA providers and deciding which one may suit my own needs best.
As a long-term investor, a rushed decision could negatively impact me for years or decades to come. Sorting out my Stocks and Shares ISA now rather than waiting until next April would give me time and space to make a well-considered decision about how to invest. That includes choosing an ISA supplier, not just shares to buy.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
The post Does it make sense to set up a Stocks and Shares ISA this month? appeared first on The Motley Fool UK.
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C Ruane has positions in British American Tobacco P.l.c. The Motley Fool UK has recommended British American Tobacco P.l.c. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.