The new tax year brings a fresh ISA allowance of £20,000. How will you spend it? Whether you can afford the whole allowance or a small fraction of it, if you’re stuck for investment ideas, you might want to take inspiration from those who have achieved ISA millionaire status.
HM Revenue & Customs recently opened its ISA millionaire files after a series of Freedom of Information requests[1]. The UK now has 2,000 ISA millionaires and the top 60 average a balance of £6.2m. Reaching the million-pound mark won’t happen overnight for most, but there’s no harm in aiming for the top.
So how did they reach that million? At interactive investor, there are 983 ISA millionaires, up from 731 last year. It has reported that investment trusts powered these portfolios, accounting for nearly half (46%) of the average ISA millionaire account, compared to just 7.6% for funds.
Investment trusts are ahead of equities (38.3%), and ETFs (just 3.1%). In contrast, the average ISA account overall has 25.5% in investment trusts. Alliance Trust was the most held trust, followed by Scottish Mortgage Trust. The third most popular holding is Shell plc, followed by Glaxosmithkline, Lloyds Banking Group, National Grid, BP, Vodafone, Aviva and Witan Investment Trust.
At Hargreaves Lansdown there are 973 ISA millionaires on its books, up from 576 last year. These investors favoured the same blue-chip companies, all of which are known for being generous dividend payers.
Hargreaves also reported the top 10 funds held by ISA millionaires. They were (in alphabetical order) Artemis Income, Fidelity Global Special Situations, Fidelity Special Situations, Fundsmith Equity, Marlborough UK Micro-Cap Growth, Jupiter European, LF Lindsell Train UK Equity, Lindsell, Train Global Equity, Rathbone Global Opportunities and Stewart Investors Asia Pacific Leaders Sustainability.
Sarah Coles, senior personal finance analyst, Hargreaves Lansdown says, “ISA investors don’t take enormous risks. More of them hold collective investments than single shares. Their focus is to consistently invest as much as possible of their annual allowance, as early as possible in the tax year, in a diverse and balanced portfolio. And they’ve done this every year for decades.”
How long could it take?
At Hargreaves the average ISA millionaire is aged 71. At interactive investor it’s 72. As Moira O’Neill, head of personal finance at interactive investor, says, “This is a reminder that investing is a marathon, not a sprint.”
However, it’s arguably easier to become an ISA millionaire today, with a generous £20,000 a year allowance for savers — assuming you have the money spare — compared with older investors who started out when ISAs launched with a £7,000 limit. Indeed, Hargreaves says it has some ISA millionaires in their 20s and 30s.
Were you to start now and invest the full £20,000 annual ISA allowance (assuming it stays the same), and your investment saw 5% annual growth (not easy, and definitely not guaranteed) excluding fees, it would take 25 years to bust the £1m threshold — £1,002,269.08, to be exact.
If your investments grew by 7% net of fees (wishful thinking maybe), you could shave three years off that period, achieving £1,048,722.82 in 22 years. But if your investment experienced annual growth of 3%, it would take 31 years to reach a seven-figure sum (£1,030,055.17).
You don’t need to reach a million to be a successful investor. Individuals should set their own goals. The golden rule for reaching any target is to start saving as early as you can.
[1] by the site investingreviews.co.uk
Images from Canva
