Becoming an Isa millionaire will be twice as easy for the next generation of investors, new research shows.
Joining the £ 1million 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 over £ 1million with broker Hargreaves Lansdown.
High life: Joining the £ 1million club is an impossible dream for many, but investing in Isas could 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. Millionaires today have built their fortunes despite being limited to a maximum annual contribution of £ 7,000 for the nine years after Isas launched in 1999.
According to AJ Bell, those investors needed to achieve an average annual growth of 14% on Isa’s maximum contributions to hit the £ 1million mark.
But now that investors have a maximum allocation of £ 20,000, they would only need 7% growth to hit the £ 1million jackpot over the same 21-year period.
Laith Khalaf, financial analyst at AJ Bell, says: “This means that the Isa millionaires of the future will be more numerous and younger. “
How big Isa cats invest
- Legal and General Group
- Lloyds Banking Group
- national grid
- Actions Royal Dutch Shell B
- Vodafone Group
- Income Artemis
- Fidelity Global special situations
- Special loyalty situations
- Fundsmith Equity Fund
- European jupiter
- 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 because you do not pay interest tax on an Isa in cash, nor on any earnings from any investment.
Any unused Isa allowance is not carried 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 millionaires Isa “hold the secret” to making a fortune through diligent investment.
She says, “While some people invest in the hope of getting rich quick, the vast majority of Isa millionaires have built a fortune through the much more reliable get-rich-slow approach.
“They’re not taking huge risks – they’ve just consistently invested as much of their annual allocation as possible in a diversified, balanced portfolio, every year, for decades. “
The top ten stocks held by this group are dominated by blue chip companies including Lloyds, Shell and BP.
Mr Khalaf says it could be because the big names in the FTSE are popular with older investors because they regularly pay dividends, even though the pandemic has seen payments reduced or missed.
Joining the £ 1million club is an impossible dream for many, but investing in Isas might make it easier than you think
And Ms Coles said other investors have shown appetites to invest in companies “stifled by the pandemic” in the hope that their stock prices will rebound.
She adds, “Isa millionaires aren’t as interested in this because they’re less prepared to risk holding stocks that aren’t going through the crisis. “
Adrian Lowcock, head of personal investments at Willis Owen, says the top ten stocks don’t necessarily represent the companies that have performed best in recent years. He adds: “It’s when they bought the stocks that matter most.
“Many of these stocks are cyclical investments that pose no existential threat to them from the pandemic.
“Overall, the list of stocks appears 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, which shows the importance of not putting all your eggs in one basket.
Indeed, Mr Khalaf notes that some held the income from LF Woodford shares when trading was suspended and are still awaiting final payment.
He says it shows that a fund that performs poorly “doesn’t need to derail a well-diversified portfolio.”
When it comes to funds and other collective investments, Isa millionaires have a wide international range, which Coles says “spreads the risk among world-class companies.”
She adds that the emergence of technology and healthcare funds shows that investors have confidence in these sectors to “outperform” the market.
A total of 28 investment firms would have made investors millionaires if they had invested the entire Isa Annual Allocation in the same firm every year, according to new data from the Association of Investment Firms.
Investing the entire Isa allocation each year from 1999 to 2020 – a total of £ 246,560 – and reinvesting the dividends in Scottish Mortgage would have generated a tax-free pot of £ 254,100 by January 31, 2021 – over ten times the initial investment.
Investment trusts represent 54% of the average Isa millionaire portfolio of Interactive Investor. 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.
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