Rise in ISA millionaires reaches 4,850 individuals
The number of ISA millionaires in the UK has been on the rise, with the latest figures showing that there are now 4,850 individuals with ISA pots worth over £1 million. This represents a significant increase from the 1,480 ISA millionaires reported in April 2020.
Building Wealth through Consistent Investing
The average ISA millionaire pot stands at £1.35 million, with the average age of these millionaires on Interactive Investor's platform being 74, significantly older than the overall ISA cohort's average age of 57. This trend suggests that the key to becoming an ISA millionaire lies in consistent, long-term investing.
ISA millionaires typically achieve their wealth through a combination of strategies. They maximize their annual ISA contributions (£20,000 per year), focus on Stocks and Shares ISAs, invest in a diversified portfolio, reinvest dividends, and harness the power of compounding.
Diversified Investment Portfolios
A diversified portfolio is a cornerstone of the ISA millionaire's strategy. This includes investing in established, dividend-paying companies, index tracker funds, global equity funds, investment trusts, unit trusts, and exchange-traded funds (ETFs).
Lord Lee, Britain's first ISA millionaire, exemplifies this approach. He holds about 20 shares, including smaller AIM-listed companies to support growing businesses while gaining tax advantages.
The Power of Compounding
The power of compounding plays a crucial role in the wealth growth of ISA millionaires. After the initial £100k is built up, compounding accelerates wealth growth, reducing the time needed to reach each successive milestone.
Tax Advantages
ISAs offer significant tax advantages. Basic-rate taxpayers now pay 18% on the sale of shares and funds that aren't held in an ISA or pension, while the rate for higher earners has increased from 20% to 24%. In contrast, ISAs are ring-fenced from the taxman, allowing investors to pay in up to £20,000 each tax year across various types of ISAs.
Flexibility and Liquidity
The flexibility and liquidity offered by ISAs are another key appeal. Unlike pensions, adult ISA investors can draw on their pot whenever they want with no ceiling on tax-free cash. In contrast, pension investors typically only have the option to withdraw a 25% tax-free lump sum up to a cap of £268,275 and can't touch their pot until aged 55 (or 57 from 2028).
The Future of ISAs
Despite recent tax hikes, there has been less tinkering around ISAs, meaning generous rewards with fewer headaches for long-term investors. Speculation of a lifetime ISA investment ceiling has so far proved unfounded.
In conclusion, UK ISA millionaires build their wealth by consistently maximizing contributions, investing in diverse, growth-oriented equity portfolios with a mix of large established companies and smaller growth firms, reinvesting income, and harnessing long-term compounding within tax-advantaged ISAs. This disciplined approach, combined with a patient mindset, is the blueprint for their long-term investment success.
Starting from scratch today, someone maxing out the current £20,000 annual allowance into a stocks and shares ISA could reasonably expect to become an ISA millionaire in around 22 years, assuming annualised returns of 7% after fees.
- Consistent long-term investing, as demonstrated by ISA millionaires, is the key to building wealth.
- Maximizing annual ISA contributions, focusing on Stocks and Shares ISAs, investing in a diversified portfolio, reinvesting dividends, and harnessing the power of compounding are common strategies among ISA millionaires.
- A diversified portfolio, which includes investing in established companies, index tracker funds, global equity funds, investment trusts, unit trusts, and exchange-traded funds (ETFs), is a cornerstone of the ISA millionaire's strategy.
- UK ISA millionaires enjoy significant tax advantages, unlike pensions, as ISAs are ring-fenced from the taxman, allowing investors to pay in up to £20,000 each tax year across various types of ISAs.
