Do you dream of being an ISA millionaire? I certainly wouldn’t say no! The UK currently has more than 2,000 ISA millionaires, and the average investment pot is worth £1.4 million according to the latest figures from HMRC.
Of those 2,000 ISA millionaires, only 80 investment pots are worth more than £2 million and a further 60 investors have pots worth more than £3 million.
For those investors, the best part is that they won’t have to pay any tax when they draw their income.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
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Who is the richest ISA millionaire?
It’s all well and good knowing that there are lots of ISA millionaires out there, but who is the richest? Our research reveals a couple of prime contenders.
1. Balbir Bagria
Balbir Bagria retired at the age of 39 back in 2000, and he’s been living on his ISA income ever since. He and his wife contributed a total of £176,000 into PEPs, which were the predecessor of ISAs. They stopped adding money to their ISAs in 2000 but the funds continued to grow with amazing success.
Balbir Bagria managed to achieve an astonishing average return of around 25% per year through choosing a portfolio of only around 10 to 15 stocks. He chose companies that delivered consistently high profits of around 15% to 20% annual earnings.
His amazing investing success means that if you’d given him £10,000 to invest in 1993, it would have grown to £2.9 million by 2016. That kind of return is virtually unheard of – even amongst professional investors.
2. Lord John Lee
Another contender for the title of the richest ISA millionaire is Lord John Lee. He became the UK’s first known ISA millionaire back in 2003. He too started his saving journey many years ago, opening a PEP in 1987.
Lord Lee also invested in a limited portfolio of around 10 stocks. He built up his wealth by never taking anything out of his ISA and always reinvesting dividend cash in new shares. He aims to hold onto a share for at least five years and only invests in profitable companies with consistent financial results and whose businesses he understands.
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What else do we know about ISA millionaires?
Most ISA millionaires tend to have been investing for a long time. According to research from Citywire, the average age of ISA millionaires is between 69 and 71.
According to Moira O’Neill, head of personal finance at Interactive Investor, “Most will have started out with Personal Equity Plans (PEPs) when ISAs were just a twinkle in policymakers’ eyes. So, the number one lesson is patience – even the millionaires didn’t get there fast.”
So the main lesson is not to lose heart if it’s taking a while to reach your investment goals. To become an ISA millionaire may take a while.
What are the main strategies used by ISA millionaires?
So, can ordinary investors learn anything from ISA millionaires? Here are some of the strategies they employ:
- Be consistent: if you want to become an ISA millionaire, then it’s important to invest consistently and get used to living within your means.
- Max out your stocks and shares ISA every year: if you can afford to, then it’s a good idea to try and max out your ISA each year. If you invest your full £20,000 ISA allowance every year for 40 years, it could grow to £1.9 million by the time you retire (that’s assuming your investment grows at 4% per year).
- Re-invest dividend income: this will give your ISA a boost as you’ll add in the extra dividend income on top of your £20,000 year ISA allowance.
- Buy value stocks: this means buying stocks that are undervalued. It’s hard to do as most undervalued stocks will already have been picked up by other investors. It is possible to invest in funds that focus on value companies.
- Buy and hold stocks for a long time: holding stocks for a long period of time is historically the best way to build investment wealth. You’ll have time for gains to build up through compounding.
- Buy equities rather than bonds: equities are generally considered more risky than bonds as share values fluctuate significantly. However, ISA millionaires usually concentrate their investments on equity investment. That’s because equities tend to seriously outperform bonds over a long time period.
How to invest in ISAs
It’s a good time to get started on ISA investing as you’ll be able to invest £20,000 now and another £20,000 after the end of the tax year.
If you’re ready to jump in and start investing then take a look at some of our top-rated stocks and shares ISAs for inspiration. We also have handy guide for beginning new ISA investors to help you get started.
