A new tax year is here, and my inbox is filled with reminders that you should deploy your individual savings account (Isa) allowance as soon as possible. Not everybody has £20,000 ready to invest, but for those that do, it’s a no-brainer that they should add it to the account as soon as possible, and then either allocate the whole sum right away or, for the more risk averse, drip feed it over the course of a few weeks to smooth out market volatility.
Bestinvest has looked at the difference between investing the full Isa allowance in the MSCI All Country World Index on the first and last day of the tax year, for every year since Isas launched in 1999. Cumulatively, those who always invested on the first day would have made £67,000 more than those who invested on the last day.
This is not exactly shocking – it reflects the well known principle that time in the market beats timing the market. But there are a lot of people who, despite fully understanding the theory, still procrastinate sorting out their Isas for months. I contribute to my Isa every month via direct debit; if I did not, I would likely be among this group. I don’t think I’ve ever filed my tax return before 28 January at the earliest.
Procrastination is a funny business. There are those who don't understand it at all, and others for whom it is basically a way of life, while most of us fall somewhere in between. There are a few psychological theories on why we procrastinate, but one that does resonate with me is that human beings are very good at avoiding things that generate negative emotions. Professor Fuschia Sirois at Durham University has written various papers on the subject and argues that procrastination is connected to mood regulation.
Even if we rationally know that in the long-term we will be better off, our emotional brain prefers to avoid a task that causes a degree of stress or fatigue in the short-term over reaching our goals. And if we are already stressed, we are more likely to procrastinate, because we are even more in need of short-term gratification – even if it’s just the gratification that comes from not doing something that causes us further stress.
Now, rationally, sorting out an Isa should not be all that stressful. Many of us already have an idea of how to allocate the money – it’s just a case of sitting down and doing it. But in truth, investment decisions are intrinsically a difficult task, even for the many of us who are confident in what we wish to do. The stakes can feel very high, and somewhere in our subconscious, the fear that this might be a bad day to invest lives on, no matter how many times we tell ourselves that trying to time the markets is irrational.
Quitting procrastination, then, is hard. Counter-intuitively, it might help to be less hard on yourself and let go of some of the stress you carry for not having done all the things you should have. So this is your reminder that investing is difficult and not always doing it perfectly is OK. And if you can, maybe go invest that Isa allowance.
