3 secrets of ISA stock market millionaires

Investing in the stock market has proven to be an ideal way of generating significant long-term wealth for thousands of ISA holders.

| More on:
A senior group of friends enjoying rowing on the River Derwent

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

There were more than 4,000 Stocks and Shares ISA millionaires in the UK in April 2021, according to data obtained by from HM Revenue & Customs (HMRC). These savers, most of whom are stock market investors, were sitting on an average ISA pot of £1,397,000.

Incredibly, the data showed that the top 50 of these portfolios were worth an average £8,509,000!

How did they do this? And can I do it too?

If so, I’m very likely going to have to do these three things.

1. Try to max out the ISA allowance

Firstly, many of these investors are almost certain to have taken advantage of the full annual allowance. Currently, this stands at £20,000, an amount it’s been at for a few years now.

Of course, I may not be in a strong enough financial position yet to max out the full ISA allowance. But even contributing half that amount — the equivalent of £833 a month — would quickly add up.

However, just sitting in cash for years isn’t likely to generate attractive returns. The average rate of return for a Cash ISA is 1.2%, according to figures cited by AJ Bell. This compares unfavourably to a 9.6% average return for a Stocks and Shares ISA over the past decade.

This is why most ISA holders turn to stock market investing in search of a better net return.

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.

2. Invest for the long term

The great thing about the stock market is there are a few ways to win. Some investors focus solely on blue-chip companies while others try to find more dynamic smaller companies with greater growth potential.

Whichever stock market strategy I employ, though, the one thing I’m going to need to reach a seven-figure portfolio is time.

As investor Peter Lynch pointed out, “You lose money fast in the stock market. You can’t make it fast.”

In other words, it’s going to take time to build wealth. Fortuantely, though, investors have a very powerful force to help us: compound interest.

3. Take advantage of compounding

Now, let’s assume I can achieve the average 9.6% annual return cited above. This isn’t guaranteed. But if I could achieve this average, then I’d end up with £1.52m after 30 years of regular £10k contributions.

YearAnnual contributionTotal
Figures from Investment Calculator

This certainly demonstrates what is possible harnessing the power of compound interest.

A top candidate

For me, The Renewables Infrastructure Group (LSE: TRIG) is a solid long-term holding. This is an investment trust with assets that generate electricity from renewable energy sources.

It owns wind, solar, and battery storage assets across the UK and five European nations. It sells the electricity these assets generate and then distributes most of this income to shareholders via dividends.

The dividend yield currently stands at a juicy 6.6%. That means I’d hope to secure around £660 a year in dividends from a £10k investment.

While no dividend is ever certain, I do like the diversification here. If adverse weather prevents energy generation in one location, the rest of the portfolio in another should help offset this.

The flip side to this diverse geographic presence is potentially unwelcome regulation. Windfall taxes, for example, could eat into profits.

Despite this risk, I’m confident the world is moving slowly but surely towards renewable energy sources. So I’ve been investing in more shares to hopefully contribute towards the growth of my ISA in the years ahead.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ben McPoland has positions in Renewables Infrastructure Group. The Motley Fool UK has recommended Aj Bell Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

2 recession-resistant UK stocks I’d buy and hold for a decade!

Our writer details two UK stocks she believes could still continue to perform well in a recession and not feel…

Read more »

Back view of blue NIO EP9 electric vehicle
Investing Articles

Down 31% this year! Is now the moment to buy NIO stock?

NIO stock has moved sharply downwards in the past couple of months. Christopher Ruane likes the business potential -- but…

Read more »

Smart young brown businesswoman working from home on a laptop
Investing Articles

2 dividend stocks I reckon could grow payouts for years to come!

This Fool is looking for dividend stocks and explains why these two picks could be primed to grow their payouts…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

Should I buy, sell, or hold my Rolls-Royce shares at £3.50?

This Fool considers what he should do with his Rolls-Royce shares following the FTSE 100 company's excellent full-year results last…

Read more »

Couple working from home while daughter watches video on smartphone with headphones on
Investing Articles

With a spare £280, here’s how I’d start buying shares this March

Our writer reflects on what he has learnt on the stock market to explain how he would start buying shares…

Read more »

Businesswoman calculating finances in an office
Investing Articles

Are these expensive FTSE 100 stocks actually brilliant bargains?

Paul Summers takes a closer look at two FTSE 100 stocks that could recover strongly in time, despite already carrying…

Read more »

Investing Articles

What might the recent Aviva share price performance tell me as an investor?

Christopher Ruane looks at how the Aviva share price has performed over the past 12 months and considers whether he…

Read more »

Investing Articles

Down by a quarter, is the BT share price a steal?

The BT share price has more than halved in the past five years. What is holding it down -- and…

Read more »