Becoming an ISA millionaire may seem like a daunting task. However, it’s certainly possible with a disciplined approach toward saving and a solid investment strategy. This is illustrated by the fact over 500 Hargreaves Lansdown clients currently have ISAs worth over £1m.
Recently, Hargreaves Lansdown spoke to some of its ISA millionaires about their wealth generation journeys. Here are three investing tips that lead to those seven-figure ISA accounts.
Max out your ISA allowance
One tip was to contribute as much as possible into an ISA each year.
“I put in the maximum amount each year and as soon as possible after the tax year begins,” said one ISA millionaire.
Now, not everyone is going to be able to put in the full £20,000 allowance. However, from a wealth-creation view, the more committed, the better. Over time, even smaller contributions into an ISA can turn into a significant sum of money, all of which is tax-free.
And this tax-efficiency shouldn’t be underestimated. Once your investment portfolio is worth six figures, an ISA could literally save you thousands in capital gains tax every year.
Invest for the long term
Another tip from ISA millionaires was to invest with a long-term focus (five years+).
“You should buy something that if you had to put it away in a box for 10 years and forget about it you would be happy to hold it for those 10 years,” another ISA millionaire said.
This is a great tip. All too often, investors get scared out of the stock market due to short-term volatility. They panic sell and end up losing money. One of the keys to investing success is understanding that stocks are volatile in the short term. Swings of 10% or 20% are very normal. Over the long term however, a diversified portfolio of high-quality stocks tends to rise.
Investors also often rush to bank short-term gains if a stock has risen 20% or 30%. There’s nothing wrong with this. However, investing for the long term means it may be possible to generate returns much higher than this.
Don’t overtrade
A third tip from Hargreaves Lansdown ISA millionaires was not to overtrade.
“Don’t overly worry about timing the market and try not to trade too frequently,” said another.
Overtrading can hurt you in two ways. Firstly, it can result in much higher fees. Excessive fees can reduce your capital. Remember, a stock portfolio is like a bar of soap… the more you handle it, the smaller it gets.
Secondly, trying to predict daily ups and downs can leave you vulnerable to missing out on some of the best days in the market. Resisting the urge to trade frequently might be tough, but it’s often worth it over the long term.
“The trick is, when there is nothing to do, do nothing,” says Warren Buffett.
ISA millionaire tips
In summary, these ISA millionaire strategies aren’t complicated. In fact, they’re all very straightforward. The takeaway here is that with a regular savings plan and a simple long-term investment strategy, it really is possible to build up a seven-figure ISA.
