There are more than 4,000 ISA millionaires in the UK right now, all set to enjoy years of passive income.
It’s double the number from before the pandemic. And I think that shows one of their investing secrets.
Secret #1
Who’s likely to be better off today, those who sold shares in the 2020 stock market crash, or those who bought?
With hindsight, it’s obvious now. But it can take steely nerves to carry on buying when the value of our stocks is crashing.
It looks like that’s what the ISA millionaires have got, though. So, keeping emotion out of it has to be a key secret.
I find it helps to remember that after every stock market crash in history, share prices climbed back up again.
Secret #2
One thing I glossed over is that ISA millionaires buy shares.
They don’t choose Cash ISAs, even though the interest is guaranteed. And the 4%-5% that some offer now has got to be tempting.
But no, the great majority of these millionaires use Stocks and Shares ISAs to build up their passive income pots.
Returns from shares are not guaranteed, and that’s a risk. And while long-term Stocks and Shares ISA returns have been good, some years can be big losers.
So, maybe we have to take a bit more short-term risk to boost our long-term gains.
Secret #3
Around 40% of a typical ISA millionaire portfolio, it seems, is in investment trusts. That’s about twice as much as non-millionaire ISAs.
Investment trusts offer two things that I think are good for passive income investors.
They can even out their dividends between good and poor years, providing a steadier cash flow. And we can choose ones that specifically target income.
They also provide diversification. We can make one investment in a single investment trust, and end up owning stakes in dozens of different stocks.
Secret #4
What about the individual stocks that ISA millionaires hold?
They buy a lot of mature FTSE 100 stocks. Shell, Lloyds Banking Group, GSK, Legal & General, BP… all are popular with the top ISA investors across a number of providers.
These stocks all generate cash and pay dividends, with good long-term records of providing income.
There’s something else in common. Over the past few years, there’s been quite a bit of volatility. I guess it shows the focus on long-term cash rather than short-term share price movements.
Secret #5
Trying to time the tops and bottoms of share prices is a mug’s game. And most ISA investors just spread their money over the year.
But the millionaires typically invest almost all their annual cash at the start of the year.
They have more money, sure. But they also know that the length of time their money is in the market is key.
Still, it must take decades to reach a million in a Stocks and Shares ISA, right?
Well, yes, in almost all cases. But Hargreaves Lansdown‘s youngest ISA millionaire so far in 2023 is only 39.
