Becoming an Isa millionaire will be twice as easy for the next generation of investors, new research shows.
Joining the £1 million club is an impossible dream for many, but investing in Isas might make it easier than you think.
There are 579 investors with Isas worth more than £1 million with broker Hargreaves Lansdown.
High life: Joining the £1 million club is an impossible dream for many, but investing in Isas might make it easier than you think
Their average age is 71, with those in their late 60s and early 70s most likely to be Isa millionaires. Two thirds are men.
But it’s easier than ever to join them. Today’s millionaires have built up their fortunes despite being limited to a maximum £7,000 annual contribution for the nine years following the launch of Isas in 1999.
These investors had to achieve an average 14 per cent annual growth on maximum Isa contributions to hit the £1 million mark, according to AJ Bell.
But now that investors have a maximum allowance of £20,000, they would need just 7 per cent growth to hit the £1 million jackpot over the same period of 21 years.
Laith Khalaf, financial analyst at AJ Bell, says: ‘That means the Isa millionaires of the future will be more plentiful, and younger.’
How the Isa fat cats invest
- Legal & General Group
- Lloyds Banking Group
- National Grid
- Royal Dutch Shell B Shares
- Vodafone Group
- Artemis Income
- Fidelity Global Special Situations
- Fidelity Special Situations
- Fundsmith Equity
- Jupiter European
- LF Lindsell Train UK Equity
- Lindsell Train Global Equity
- Marlborough UK Micro-Cap Growth
- Marlborough Multi Cap Income
- Stewart Inv Asia Pacific Leaders
An Isa is a valuable tax shelter for savings and investments as you don’t pay tax on interest for a cash Isa, or on the gains from any investments.
Any unused Isa allowance doesn’t roll over — if you don’t use it, you lose it. You have until April 5 to use this year’s £20,000 allowance.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, says Isa millionaires ‘hold the secret’ to making a fortune from diligent investment.
She says: ‘While some people get into investment in the hope of getting rich quick, the vast majority of Isa millionaires have built a fortune through the far more reliable approach of getting rich slow.
‘They don’t take enormous risks: they’ve just consistently invested as much as possible of their annual allowance in a diverse and balanced portfolio, every year, for decades.’
The top ten shares held by this group are dominated by blue chip companies, including Lloyds, Shell and BP.
Mr Khalaf says this could be because the FTSE’s big names are popular with older investors as they are regular dividend payers, even if the pandemic saw payments cut back, or missed.
And Ms Coles says other investors have shown an appetite for investing in firms ‘laid low by the pandemic’ in the hope that their share price will rebound.
She adds: ‘Isa millionaires aren’t as interested in this, because they’re less prepared to risk holding shares that don’t make it through the crisis.’
Adrian Lowcock, head of personal investing at Willis Owen, says the top ten shares don’t necessarily represent the companies that have performed the best in recent years. He adds: ‘It’s when they bought the shares that matters most.
‘Many of these stocks are cyclical investments that don’t have an existential threat posed to them by the pandemic.
‘Overall, the list of shares looks to be driven by valuations with a bias towards the less risky areas of the market.’
AJ Bell’s Isa millionaires have an average of 28 investments each, showing the importance of not putting all your eggs in one basket.
Indeed, Mr Khalaf notes that some held the LF Woodford Equity Income when trading was suspended and are still waiting for the final payout.
He says it shows one fund that performs poorly ‘needn’t derail a well-diversified portfolio’.
Joining the £1m club is an impossible dream for many, but investing in Isas might make it easier than you think
When it comes to funds and other collective investments, Isa millionaires have a broad international mix, which Ms Coles says ‘spreads risk across world-class companies’.
She adds that the appearance of technology and health funds shows that investors have confidence in these sectors to ‘out-perform’ the market.
A total of 28 investment companies would have made investors millionaires if they had invested the full annual Isa allowance in the same firm each year, according to new data from the Association of Investment Companies.
Investing the full Isa allowance annually from 1999 to 2020 – a total of £246,560 – and reinvesting the dividends into Scottish Mortgage would have generated a tax-free pot of £2,541,100 by January 31, 2021 – more than ten times the original investment.
Investment trusts account for 54 per cent of the average portfolio of Interactive Investor’s Isa millionaires. This could be because they tend to outperform funds over the long term.
The most popular are Scottish Mortgage, Alliance Trust and Witan Investment trust.
Best investing platforms: Compare the best and cheapest investment platforms and stocks & shares Isa
When it comes to choosing an investment platform, stocks & shares Isa or a general investing account, the range of options might seem overwhelming.
Every provider has a slightly different offering, charging more or less for trading or holding shares and giving access to a different range of stocks, funds and investment trusts.
When weighing up the right one for you, it’s important to to look at the service that it offers, along with administration charges and dealing fees, plus any other extra costs.
To help you compare investment accounts, we’ve crunched the facts and pulled together a comprehensive guide to choosing the best and cheapest investing account for you.
We would advise doing your own research and considering the points in our guide linked below before you choose.
|Admin charge||Charges notes||Fund dealing||Standard share, trust, ETF dealing||Regular investing||Dividend reinvestment|
|AJ Bell YouInvest||0.25%||Max £3.50 per month for shares, trusts, ETFs. £10 for Sipps.||£1.50||£9.95||£1.50||1% (Min £1.50, max £9.95)||More details|
|Charles Stanley Direct||0.25%||Platform charge waived on shares if one trade in that month. Annual min £24 and max of £240 on shares.||Free||£11.50||n/a||n/a||More details|
|Fidelity||0.35% on funds||£45 flat fee up to £7,500. Max £45 per year for trusts and ETFs (Some shares)||Free||£10||Free funds £1.50 shares, trusts ETFs||£1.50||More details|
|Hargreaves Lansdown||0.45%||Capped at £45 for shares, trusts, ETFs||Free||£11.95||£1.50||1% (£1 min, £10 max)||More details|
|Interactive Investor||£119.88 for standard account / £9.99 per month||£7.99 per month back in trading credit lasting 90 days||£7.99||£7.99||Free||£0.99||More details|
|iWeb||£100 one-off||£5||£5||n/a||2%, max £5||More details|
|Vanguard||0.15%||No fee above £250k (£365 cap)
Only Vanguard funds
|Free||Free only Vanguard ETFs||Free||n/a||More details|
|(Source: ThisisMoney.co.uk Jan 2021 Admin charges quoted annually, may be collected monthly or quarterly)
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