Across the UK today, there are several thousand ISA millionaires. These investors have taken advantage of the tax-free allowances on offer, and the power of long-term investing, to build up seven-figure portfolios.
Keen to join the ISA millionaire club? Here’s how long it might take.
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.
An achievable goal
Becoming an ISA millionaire is a very achievable goal. Realistically, though, it’s going to take awhile to achieve.
Exactly how long it will take will depend on a few things. The main factors are:
- How much you contribute to your ISA every year (the more you contribute the sooner you could get there)
- Your investment returns (the higher your returns the sooner you could get there)
- Your account fees (the lower your fees the sooner you could get there)
Crunching the numbers
As an example, let’s say that you contribute £10,000 per year to a Stocks and Shares ISA and you generate a return of 7% after fees (very achievable) per year over the long run. In this scenario, it would take about 30 years.
Now let’s say you contributed the full £20,000 allowance and achieved 7% per year. In this scenario, it would take about 22 years to get there.
How to aim for 7% per year
In terms of how an investor could try to achieve a 7% return per year, a solid option would be a diversified portfolio of shares and/or funds. Over the long run, shares tend to return around 7%-10% per year.
The diversification aspect (owning lots of different shares) is important here. The key to achieving high returns over the long term is minimising big portfolio losses – which diversification can help do.
Targeting higher returns
It’s worth noting that it could be possible to achieve significantly higher returns and achieve ISA millionaire status sooner. With individual shares and niche funds, returns of 12%, 15%, 20%, or even higher are possible.
One stock that I think could be capable of providing outsized returns over the next decade is Scottish Mortgage Investment Trust (LSE: SMT). This is a fund that provides exposure to a broad range of growth companies (both listed and unlisted).
Names in the portfolio today include the likes of Amazon, SpaceX, ASML, and Taiwan Semiconductor. The goal of the portfolio managers is to capitalise on big themes such as AI, healthcare innovation, and the digitalisation of finance.
This product has a great long-term performance track record. Over the 10-year period to the end of February, for example, its share price rose 426% (that equates to an annualised return of about 18%).
That said, returns haven’t been linear. There have been times where this trust’s share price has fallen significantly (eg, when interest rates rose in 2022) so investors have had to put up with a lot of volatility.
I think it’s worth considering as part of a diversified portfolio, given its exceptional track record. If it continues to perform well, it could play a role in helping an investor achieve ISA millionaire status.
