There are around 250 investors in the UK with at least one million pounds in their ISAs. But does it require a special kind of genius to achieve that feat, or could ordinary folk like you and me achieve it?
One way to find out is to take a look at what millionaire investors put in their ISAs. I can tell you straight up that they don’t leave much of their investments in cash. At the lousy rates on offer from Cash ISAs, you’d have to live a very long time to accumulate a million. Even then you’d stand a big change of losing out to inflation.
No, according to Interactive Investor, their average ISA millionaire has 59% of their investments in individual company shares. That’s less than I would have guessed, but I’m buoyed by the fact that a further 23% is in investment trusts.
Pooled investments can spread risk and make choices easier, but with open-ended investments like unit trusts, there’s a potential conflict of interest. Investors hand over their cash to be managed by a company’s experts, but those experts are employed to maximise the profits of the owners rather than investors.
But I like investment trusts, because they work in a way that means no conflict of interest between investors and owners. If you want in, you don’t hand over cash to be managed, you just buy the shares. That way, investment trust investors are its owners.
Millionaire ISA investors have only around 7% of their cash in unit trusts, so it seems the investments we like best here at The Motley Fool are the same ones that the most successful investors favour.
Which individual company shares do they hold? The top five held by Interactive Investor millionaires are all FTSE 100 shares. They are Royal Dutch Shell, GlaxoSmithKline, Lloyds Banking Group, Aviva and Legal & General.
Of those, I own shares in Aviva and Lloyds, and Shell and GlaxoSmithKline are on my top to-buy list. Maybe there’s millionaire hope for me yet.
It’s also interesting to see they are all big dividend shares, with forecast yields ranging from GlaxoSmithKline’s 5% to Aviva’s 7.9%. The average yield of the five is 6.14%, and reinvesting that level of cash every year can soon add up… to a million, it seems.
Four out of those five are among the 10 most popular FTSE 100 shares among ISA investors in 2019 too, with only GlaxoSmithKline not making the list. But Barclays is in there alongside Lloyds, and Standard Life Aberdeen joins the two insurers.
All five of Interactive Investor’s top millionaire selections made Hargreaves Lansdown’s top 10 in 2018 too, with Unilever an addition that I like a lot. Unlike most of the rest, Unilever isn’t a big dividend payer, with a forecast yield of only 3.3%. But its dividends are progressive and very reliable, and Unilever has delivered cracking total returns over the long term.
So what’s the secret to learn here? Really that there’s no big secret, and the success of ISA millionaires is down to what we at The Motley Fool (along with many top investors) have been preaching for years…
Put your money into top quality stocks, reinvest all your dividends… and wait.
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Alan Oscroft owns shares of Aviva and Lloyds Banking Group. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline and Unilever. The Motley Fool UK has recommended Barclays and Lloyds Banking Group. 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.