Latest government figures reveal that nearly £400bn is held in Stocks and Shares ISAs. But of the 3m individual accounts, only 2,000 are believed have a market value in excess of £1m.
Hargreaves Lansdown recently released some interesting data about the 626 ISA millionaires on its investment platform.
I’ve been looking at the information to see what lessons I could learn and how I might become a better investor.
1. Be patient
The average age of the millionaires is 74. It therefore takes time and patience.
With a £20,000 limit on how much can be invested each year, this isn’t surprising.
But interestingly, during the most recent tax year, a third had used their full allowance within the first month. Over half had invested £20,000 within three months.
Rather than drip-feeding, it appears that the majority of the millionaires invest larger amounts as quickly as possible.
2. Diversify
Most of them own either investment trusts or funds, rather than individual stocks.
This means they can have a diversified portfolio — spreading risk across a range of companies, industries, and countries — by holding a relatively small number of individual investments.
Five of the 10 most popular funds are global in nature, holding equities in numerous locations. Four are UK-centric, and one invests only in Asian stocks.
Warren Buffett, the American billionaire investor, disagrees with this approach. He believes very few fund managers are capable of outperforming the stock market. Buffett advocates buying a tracker fund that seeks to mirror the performance of a particular index.
Whether I choose to invest in a fund or a tracker, it takes away the problem of having to identify which individual stocks to buy.
3. Leave well alone
Approximately two-thirds of Hargreaves Lansdown’s ISA millionaires didn’t trade their portfolio during the last tax year.
This means they are more like investors than traders.
It’s not clear what they did with the dividends they received. But savvy investors will reinvest these. That way they hope to compound returns, helping to grow their portfolios more quickly.
Lessons learned
So what have I learned?
First, take a long-term view and invest as much as possible. I don’t think I’ll be in a position to use the full ISA allowance each year. But I’ll continue to invest everything I can. The oldest of the Hargreaves Lansdown millionaires is 99. That gives me plenty of time to get to £1m!
Second, I have too high a concentration in UK equities. Although I do try to maintain a diversified ISA, I could spread my risk further through having greater exposure to more regions and sectors. I should therefore consider adding some funds to my portfolio.
Finally, I’ve learned that, one day, I could become an ISA millionaire. It’ll probably take many more years but I’m determined to get there. Hopefully my perseverance will be rewarded. As Confucius, the Chinese philosopher, once said: “It doesn’t matter how slowly you go as long as you don’t stop“.
