Vital Tips on How to Become an ISA Millionaire

Everybody wants to be an ISA millionaire – after all, why else are you saving if not to have a lucrative pot of money at the end of it?

Yet according to Hargreaves Lansdown[1], just 168 investors have become members of the elusive ISA millionaire club, while the UK’s other 11 million[2] ISA savers are still playing catch up.

However, there are a few signs that ISA millionaire status is becoming more attainable for the masses.

It has been just 15 years since Lord Lee[3] became the UK’s first ever ISA millionaire, and in 2012, Hargreaves Lansdown has only three ISA accounts worth £1m or more on its platform.

This suggests that ISA millionaire status is becoming an achievable dream – just as long as you invest your money wisely.

“Investors have benefited from vastly increased ISA allowances in recent years,” says Sarah Coles, personal finance analyst at Hargreaves Lansdown.

“However, building a million pound ISA portfolio isn’t just about putting your full allowance in and banking on a rising market.

Successful investors have built a coherent strategy, taken a sensible amount of risk, been committed during the difficult times, and adopted a long term view.”

Read on for our tips on how to become an ISA millionaire…

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Invest early

The sooner you start saving into an ISA, the longer you have to benefit from the effects of compound interest.

Compound interest occurs when annual returns are automatically reinvested into the original investment pot, thus increasing your capital and your future returns.

Effectively, compound interest represents free money, and no future millionaire would ever turn that down!

Use up your allowance

The current ISA allowance is £20,000 per person, but that figure resets at the end of the tax year. If you don’t use up your total allowance, you won’t get it back, so it is worth saving as much as you can afford on an ongoing basis.

Don’t forget, your partner or spouse can also save up to £20,000 per year, and you can also save up to £4,128 into a Junior ISA on behalf of your children, so your whole family could become collective millionaires in record time.

Forget cash holdings

In the current low-interest environment, it is almost impossible to become an ISA millionaire through Cash ISAs alone. As of February 2018, the average Cash ISA was paying just 0.78 per cent[4], while inflation stood at 2.7 per cent[5].

Even if you were investing the maximum amount of £20,000 into your Cash ISA every year, at 0.78 per cent it would take 42 years for your balance to reach £1m.

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Instead, keep a small amount of money in cash and put the rest into Stocks and Shares ISAs, Innovative ISAs and Lifetime ISAs, where you can create a diversified portfolio of equities, alternative finance and debt options.

Stay mainstream

Hargreaves Lansdown released the top ten stock holdings and top ten funds in the portfolios of its ISA millionaires, and the results were surprisingly dull.

The most popular stocks were all FTSE 100 companies such as Aviva, BP, Lloyds Banking Group and GlaxoSmithKline; while the most popular funds were a mid of equity and income. This has the effect of creating a balanced portfolio which can grow steadily over time.

“If you look at the most commonly held funds and shares in millionaire portfolios, they’re not jam-packed with super-high risk assets,” says Hargreaves Lansdown’s Sarah Coles.

“They have balanced mainstream portfolios, positioned to take advantage of growth opportunities, without going overboard.”

Manage your risk

If you want to grow your portfolio quickly, you may want to consider taking on a bit more risk in order to access higher returns.

For instance, emerging markets, frontier markets, private equity companies, cryptocurrencies and tech stocks all tend to fall under the category of ‘high risk, high reward’.

This means that you could make double digit returns one year, but incur losses soon after. Work out your individual risk profile and carve out a piece of your ISA for higher risk investments so you can take advantage of the potential of these stocks without risking everything.

Yearly ISA Allowances History Table

The ISA allowances every year since the inception of these tax-free
accounts. It is not possible to exceed this total allowance.
ISA YearCash ISA AllowanceLifetime ISA AllowanceJunior ISA AllowanceTotal ISA Allowances
2018/19£20,000£4,000£4,260
£20,000
2017/18£20,000£4,000£4,128£20,000
2016/17£15,240N/A£4,080£15,240
2015/16£15,240N/A£4,080£15,240
2014/15£15,000N/A£4,000£15,000
2013/14£5,760N/A£3,720£11,520
2012/13£5,640N/A£3,600£11,520
2011/12£5,340N/A£3,600£10,680
2010/11£5,100N/AN/A£10,200
2009/10£3,600N/AN/A£7,200
2008/09£3,600N/AN/A£7,200
2007/08£3,600N/AN/A£7,000
2006/07£3,000N/AN/A£7,000
2005/06£3,000N/AN/A£7,000
2004/05£3,000N/AN/A£7,000
2003/04£3,000N/AN/A£7,000
2002/03£3,000N/AN/A£7,000
2001/02£3,000N/AN/A£7,000
2000/01£3,000N/AN/A£7,000
1999/20£3,000N/AN/A£7,000

The first ISA millionaires likely transferred funds from previous forms of tax efficient accounts – PEPs or TESSAs.

[1] http://www.hl.co.uk/news/2018/3/8/isas-2018-making-the-most-of-your-savings-and-investments

[2] https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/640723/Table_9.4_Published_August_2017.pdf

[3] https://www.telegraph.co.uk/finance/personalfinance/investing/11465471/Britains-first-Isa-millionaire-Lord-Lee-reveals-his-portfolio-and-what-hes-been-buying.html

[4] http://www.bbc.co.uk/news/business-43114652

[5] https://www.ons.gov.uk/economy/inflationandpriceindices

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Last updated: March 16th, 2018

Kathryn Gaw

Kathryn Gaw is a financial journalist based in Belfast, Northern Ireland. She has been writing about personal finance and investment trends for more than a decade, and her work has been featured in the Financial Times, City A.M., the Press Association, and The Irish Independent, among many other publications.

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