Investing Basics: Lump sum investing provides best returns over long time horizons 

• Analysis shows investing a lump sum at the start of the tax year historically provides 7% higher ISA returns over 15 years when compared to investing monthly 

• Nearly 1 in 4 (23%) plan to increase the amount they invest this tax year

Recent data analysis from Alliance Witan has highlighted the importance of staying invested for the long term even in times of market volatility. When modelled, Alliance Witan found that  if an investor had maxed out their tax-free ISA allowance (£20,000) each year across a 15 year time period, the gain would have exceeded £180K. 

The analysis shows that over the 15-year period, if you had invested your full ISA allowance every April at the beginning of the tax year, your returns would be 7% higher than if you chose to spread it out monthly. However, if you had raced to invest it before the new tax year deadline in March each year, you would have ended up with 15% less than those who invested in April – and 9% less than could have been achieved by investing a regular amount monthly. 

Whilst the analysis illustrates that investing a lump sum at the beginning of the tax year would have historically provided the best returns, that does not necessarily mean this is a strategy that will work for everyone. Investors who wish to pursue this must have the year round financial discipline to save up, and not spend, the amount they wish to invest at the beginning of the tax year. Additionally, they must be financially resilient enough to not get spooked by alarming headlines or in times of market turmoil – no easy feat particularly now, in the midst of a trade war that has seen 5% swings in the major market indexes. 

Another consideration is the human inclination to put off life admin. The latest research from Alliance Witan found that close to half of investors put off tasks like personal admin (47%), and 4 in 5 put off thinking about the future (84%), which can get in the way of long-term goals – financial or not. 

This is where monthly investing, or pound-cost averaging, works to the advantage of investors. It plays into people’s tendencies to minimise the decision-making process. 

The best strategy for investing is the one you’ll stick with and for many, the answer involves elements of both approaches. Alliance Witan’s analysis shows that investing half the annual amount in April, then spreading the rest between monthly installments, delivers 3% more than investing monthly alone, and only 3% less than a lump sum in the beginning of the tax year. 

Additionally, the research also highlighted the range of approaches investors plan to take in the new tax year. Nearly 1 in 4 (23%) plan to increase the amount they invest this new tax year, while 22% plan to make the same regular payments into their savings and investing accounts. Cash is still a popular option, with 22% planning to increase the amount they save this way. 

There are also a number of investors planning to make a lump sum payment at the start of the year into their ISA, while 15% plan to make a payment at the end of the tax year. Others looking to make the most of their tax-free allowance are doing so by investing regular amounts into their ISA (20%) and 16% are even looking to invest regularly in the new tax year, whether this is in their ISA or otherwise. 

Alliance Witan’s Mark Atkinson commented: “Each investor is unique and will have their own investment strategy and time horizons. Our analysis finds that the beginning of the tax year is the best time to reap the benefits of investing. But most importantly, it’s about playing the long-game and sticking with your strategy even in times of market volatility. 

“All investors, no matter how seasoned, will likely have been unsettled by the recent market swings we have witnessed, particularly those with shorter-time horizons. Those that choose to stay invested, rather than crystallise any loss, will likely benefit over the longer term as our analysis has demonstrated.  Young investors may even have more appetite to invest during this period too, snapping up any stocks they feel have good value at a cheaper price.  

“Whether you choose to invest in your ISA with a lump-sum, or a mix including monthly instalments, it’s important that this is comfortable and sustainable for you and your lifestyle. Investing in your ISA doesn’t have to be overwhelming or time-consuming.” 

Methodology

To model the long-term impact of different ISA investment behaviours, we used the share price of Alliance Trust (ALW.L) as a stand-in for global stock market performance. Alliance Trust is an actively managed, multi-manager investment trust with broad international exposure. We simulated monthly investments based on the annual ISA allowance (using historical limits) from April 2010 to March 2025, assuming dividends were reinvested using the adjusted close price.

We also modelled lump sum investing in April (the start of the tax year) and March (the end), as well as a hybrid approach: investing 50% of the allowance in April and spreading the rest evenly over the remaining 11 months. For comparison, we modelled a cash ISA using average interest rate data from the Bank of England, with interest compounded daily.

To estimate the tax benefits of using an ISA, we applied current UK rules on capital gains and savings interest for both basic-rate and higher-rate taxpayers, based on the latest HMRC thresholds.

Research was conducted by Opinium on behalf of Alliance Witan from 18^th – 25^th March 2025. The study surveyed 1,000 UK adults with investible assets worth £10,000 and over, including 410 investors that had sold investments at a loss in the last five years.