ISA millionaires are an elite few. According to online stockbroker Hargreaves Lansdown, it has just 168 customers with seven-figure ISAs on its books. Clearly, those who have achieved million-pound ISA status know a thing or two about investing.
Yet if you’re under the impression that ISA millionaires have probably employed all kinds of complicated, high-risk investment strategies to get where they are today, you’d be mistaken. Take a look at the most popular stocks and funds that the country’s ISA millionaires own – you might be surprised.
ISA millionaire stocks
The top-10 stocks owned by ISA millionaires, according to Hargreaves Lansdown, in alphabetical order are:
- Legal & General Group
- Lloyds Banking Group
- National Grid
- Rio Tinto
- Royal Dutch Shell plc B Shares
- Vodafone Group
ISA millionaire funds
The stockbroker also revealed the most popular funds among those sporting seven-figure ISA accounts. In alphabetical order, here they are:
- Artemis Income
- Fidelity Special Situations
- Fundsmith Equity
- Invesco Perpetual High Income
- LF Woodford Equity Income
- Lindsell Train Global Equity
- Marlborough Multi Cap Income
- Marlborough Special Situations
- Marlborough UK Micro-Cap Growth
- Stewart Investors Asia Pacific Leaders
Is there anything we can take away from this insight? Absolutely. Here are two important lessons.
For starters, the common theme here seems to be a focus on low-risk, large-cap investing. ISA millionaires’ portfolios are not filled with high-risk assets. All of the stocks listed above are well-known FTSE 100 companies. Similarly, the majority of those funds invest mainly in large-cap companies.
Capital preservation is a fundamental concept when it comes to building long-term wealth from the stock market. As Warren Buffett often stresses, it’s vital that you don’t lose money when investing. That’s where large-cap stocks can play a key role, as they’re generally less risky than smaller companies. As a result, a low-risk investment strategy that focuses on stable, secure businesses can generate impressive returns over the long term.
Second, there appears to be a strong focus on dividends among ISA millionaires. All of those stocks pay their shareholders large dividends, and most of those funds have a focus on income as well. This is an important point that shouldn’t be ignored.
While many investors focus on capital gains, it’s the dividends you earn, and the reinvestment of these dividends, that will often provide the bulk of your total investment returns over the long term. For example, for the 20-year period to the end of 2016, the FTSE 100 returned 73% in capital appreciation terms, according to Bloomberg. However, with reinvested dividends added in, the total return was 214%. Dividends are an amazing compounding tool when reinvested as they allow you to earn a return on your previous returns. Over time, this can result in the exponential growth of your capital.
The moral of the story here is that investing doesn’t need to be complicated. To build up an impressive seven-figure ISA portfolio, play it safe with low-risk large-cap stocks, reinvest your dividends, and stick it out for the long term.
Edward Sheldon owns shares in Lloyds Banking Group, Legal & General Group, Unilever, Royal Dutch Shell, Aviva and GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended BP, Lloyds Banking Group, and Royal Dutch Shell B. 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.