The ‘secret’ to becoming an ISA millionaire isn’t a secret: you just need to buy great stocks at reasonable prices and hold for decades. The only caveat is that it’s easy to sabotage your own progress. Here’s how to stop that from happening.
1. Focus on the process
The first habit to cultivate is actually to stop obsessing over the value of your portfolio. As James Clear states in his book Atomic Habits: “You do not rise to the level of your goals, you fall to the level of your systems“. ISA millionaires always shoot for becoming better investors.
People will vary on the extent that they want to learn about the stock market. Nevertheless, we all should know (and frequently review) our financial goals, time horizon and risk tolerance at the very least. Stock-pickers absolutely must keep up to date with their companies too.
By focusing more on the process, you’re also less likely to become demotivated in the early years when the benefits of compounding are hard to appreciate.
2. Millionaire spending hacks
What image springs to mind when you imagine an ISA millionaire? Fast car? Big house? In truth, a lot of eventual millionaires have no interest in showing off their wealth. They get used to living below their means. Just look at Warren Buffett.
This does not mean adopting a monk-life existence. It means keeping your spending under control.
If you’re tempted to buy something online, leave it a week before buying it. This way, you make fewer impulsive purchases. Another option is to select something you habitually spend money on, such as your morning coffee, and move that cash into your ISA at the time you’d usually buy the former. You may miss the caffeine hit initially, but the reward of seeing your savings increase immediately should compensate and make it more likely you’ll repeat the behaviour.
3. Automate to your ISA!
Investing is one of the few endeavours where it’s possible to become wealthy without actually doing much. To stick with it, however, you need to make it easy. This involves automating what you can.
Set up an instruction with your ISA provider to transfer a fixed amount of money from your current account every month. Make this coincide with payday and you won’t be tempted to splurge the money on something else. Think of it as paying a bill, albeit one that will eventually get refunded (and then some!) further down the line.
You can also set an instruction to automatically invest the same amount in a group of shares or funds every month. Pound-cost averaging is one of the greatest tools available to private investors.
4. Be tough (on yourself)
To ensure your good deeds bear fruit, you also need to be tough in eradicating your worst tendencies. These can include constantly checking your portfolio’s value and/or selling great stocks because you’re scared or bored.
Make doing these things as hard as possible. Options include watching/reading less panic-inducing news (removing the ‘cue’ to do something) or blocking your laptop from accessing your broker’s website. In a fresh twist on the ‘swear jar’ idea, you could also have an agreement to do something you hate if you lapse.
Remember, the biggest threat to becoming an ISA millionaire is not the occasional, inevitable market crash — it’s you.
Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.