Becoming an ISA millionaire is “more common” than one may believe as most of these wealthy people invest in similar equities.
An investment expert has shared some key tips to help Britons join the ISA millionaires club as the numbers increase.
In 2020 – 2021, the number of ISA millionaires hit 4,070, with an average pot of £1.39million, according to HMRC.
Of these 4,070, Hargreaves Lansdown reported that 1,160 use their investment platform and use similar wealth-building strategies.
Victoria Hasler, head of fund research at Hargreaves Lansdown said: “Having a million pounds in your ISA may sound like a pipedream, but it’s actually more common than you might think.
“At the end of May 2024, there were 1,160 people with a million pounds or more in their HL Stocks & Shares ISA.
The value of investments can fall as well as rise and you could get back less than you invest
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“HL ISA millionaires have most of their money invested in equities, but within this they are well diversified globally.
“They tend to have a higher proportion invested in the UK than non-millionaires. Non-millionaires prefer global and US equities.”
However, she did note that over the last ten years, by far the “best performing” of these regions has been the US.
The main difference between the millionaires and non-millionaires is their age. The average age of an HL ISA millionaire is 74, compared to the average age of regular Stocks & Shares ISA investors of 51.
Despite “time in the market,” being a golden nugget in the success of ISA millionaires, there are other key considerations that investors can take into account to generate wealth.
To get to £1million “as fast as possible”, Barclays Smart Investor suggests investing the maximum each year. The most people can invest in an ISA in any given tax year is £20,000.
If someone started saving today and the ISA limit remained at £20,000, it would take them 25 years to become an ISA millionaire, assuming an average annual return of five per cent.
For those who don’t have a lump sum to invest every April, the more common way of investing is to do regular amounts each month, their website stated.
Another way to boost success is to leave ISA funds untouched. Smart Investor explained that reinvesting returns is “crucial to growing your wealth”. This is because, through the magic of compounding, investments can grow faster.
Additionally, another consideration is the investments one chooses. This is a “main driver” that will determine whether investors can one day achieve ISA millionaire status.
Hasler explained that HL ISA millionaires seem to appreciate income as a wealth-building strategy, with the Artemis Income fund the most popular UK fund.
The fund is managed by Adrian Frost alongside Nick Shenton and Andy Marsh, who are all accomplished investors. Over the long term, their fund achieved a return of 89.42 per cent over the ten years to the end of May 2024, which is more than 10 per cent ahead of the FTSE All Share index.
She also mentioned another fund which was popular among HL ISA millionaires – the Fidelity Special Situations fund.
Alex Wright, another experienced investor who manages the fund has been able to achieve a return of 98.04 per cent over ten years to the end of May. This is more than 20 per cent ahead of the benchmark.
Hasler continued: “UK smaller companies, which have underperformed their larger counterparts of late, could be an exciting space in which to invest. Traditionally, these types of companies have performed well in the lead up to and immediate aftermath of rate cuts.
“While we’re not necessarily expecting an imminent rate cut, it seems highly likely that the Bank of England’s next move will be down rather than up.”
Another fund which has previously performed well over the long term in the UK smaller companies sector is Royal London UK Smaller Companies. It has seen a return of 88 per cent over the last ten years, and 10 per cent over the last three months.
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It should be noted that this is not investment advice. The value of investments can fall as well as rise and people could get back less than what they invest.For a personal approach, investors are encouraged to consult a financial advisor before they do anything with their money.
Hasler concluded: “Sadly, there is no quick fix to becoming an ISA millionaire. The main difference between the millionaires and non-millionaires is their age.
“The average age of an HL ISA millionaire is 74, compared to the average age of regular Stocks & Shares ISA investors of 51. It’s that old chestnut of time in the market again. So, starting your ISA investing early is a key component to joining the ISA millionaire club.
“Other important steps to getting the best returns and seeing that money grow are using your ISA allowance every year, investing wisely and regularly, then leaving the money there.”
