Investment ISAs or Individual Savings Accounts allow you to save and invest money within a government-approved tax-free wrapper. A select group of investors have used the product and its annual allowances, to become ISA millionaires. Here’s what you need to know:
What is an ISA millionaire?
An ISA millionaire is simply an ISA investor whose ISA portfolios have a value of £1.0 million or more. ISAs have been available since 1999 however, the maximum annual investment started out at just £7000 and that figure was split between a cash ISA limit of £3000, and a stocks and shares ISA limit of £4000. Even as recently as the tax year 2015/16, the total subscription limit was just £15240 per annum. Only jumping to the current £20,000 per annum in 2017/18.
So even the most assiduous and well-healed investor, who made full use of their ISA allowances over those 23 years, couldn’t have saved £1.0 million into ISAs over that time frame.
- Related guide: Compare Stocks & Shares ISA accounts
How do you become an ISA millionaire?
First of all, you’ll need to be a committed long-term investor who takes full advantage of the ISA allowances each year whether thats through an annual lump sum investment or regular monthly savings throughout the year every year.
Assuming that ISA allowances stay at the current £20,000 limit for the next 10 years if you max out your allowance each year you could save as much as £200,000 in that time.
Time in the market is also your friend, data from Bank of America shows that the longer you leave your money invested in the stock market, the lower the probability of negative returns.
For example, money invested in equities for 10 years at any point between 1929 and 2020 had a just 6% chance of producing negative returns, compared to a 38% chance of loss if the money was invested for just one month.
The final piece of the jigsaw is fund and stock selection or asset allocation – in other words, what you do and don’t invest in will have a major impact on the performance of your ISA portfolio.
- Related guide: How to invest £1m
What do ISA millionaires invest in?
Hargreaves Lansdown is one of the country’s largest ISA providers and the broker has dug down into its data to shine a light on the trends and traits among iSA millionaire investors.
The age range among the ISA millionaire cohort is surprisingly broad and spans investors in their 30s to those over 100 years old. The average age of Hargreaves Lansdown clients who are ISA millionaires is 73 and there are clusters of investors at the ages of 74 and 76 years.
The ISA millionaires have built their fortunes over time getting rich slowly.
The 573 ISA millionaires at the broker have not been excessive risk takers either, but they do invest as much of the funds in their ISAs as possible, into what the broker calls a diverse and balanced portfolio.
A majority of ISA millionaires prefer to invest in managed funds rather than individual equities and they hold a broad range of international funds, not just UK-specific investments.
According to Hargreaves’ research, the larger portfolios among ISA millionaires often have holdings in special situations and global opportunity funds.
Popular managed funds among the ISA millionaires include Lindsell Train Global Equity, Fundsmith Equity, Fidelity Global Special Situations, BNY Mellon Global Income and the IFSL Marlborough Multicap Income Fund.
How long does it take to become an ISA millionaire?
As Hargreaves Landsdown notes many of their ISA millionaires have gotten rich over time by allowing their investment returns to compound and perform over multi-year periods even decades.
Of course, it might be possible to achieve ISA millionaire status over a shorter period of time.
For example, if you had had an ISA pot of £100,000 pounds in 2018 and had invested it all into EV Manufacturer Tesla (TSLA) you would have seen a +940% return on your money taking your pot to a value of £940,000.
Alternatively, £15,000 invested into graphics chip maker Nvidia (NVDA) in 2013 would have returned more than +8500% to date and would have seen your relatively modest stake grow into £1.28 million.
How much money do you need to start with to become an ISA millionaire?
The honest answer is as much as possible, simply because the more money you have invested over the longest possible period, then the bigger the chance you have of achieving ISA millionaire status, allowing compounding and the reinvestment of dividends to play their part.
Reading between the lines of the Hargreaves Lansdown research ISA millionaire status has happened to quite a few of their clients as a by-product of a disciplined and diversified approach to investing.
Can you become an ISA billionaire?
In theory yes you could become an ISA billionaire however in practice it would be pretty hard to achieve and to do that you would have to outperform the best professional money managers year in and year out, which is not impossible but is highly unlikely.