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How the FTSE 100 crash could help make you an ISA millionaire

Do you know how many ISA millionaires there are in the UK? It’s hard to tell, because the values of our portfolios are not public knowledge. But some informed guesswork has been done on the subject.

Hargreaves Lansdown has an ISA millionaire or two among its customers. More than 100 of them, in fact. And Interactive Investor reckoned it had around 90 about a year ago. Overall estimates suggest there are probably around 1,000 ISA millionaires in the UK.

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Now, that was last year, and since then we have had a bit of a FTSE 100 crash on the back of the Covid-19 lockdown. The index has lost around 25% of its value. And that will surely have dropped a few big ISA accounts back below the £1 million mark.

But I’m quite sure the FTSE will recover the loss and get back to its long-term trend. And history has shown that downturns in the market can provide some of the best opportunities to invest our cash. I even think 2020 could turn out to be one of the best years ever to start a Stocks and Shares ISA.

ISA millionaire

Reaching a million is not easy, I’m not trying to claim that. But if you have the patience to plan a long-term investing future, it is definitely achievable. When I say long-term, how long might it take to become an ISA millionaire, starting from scratch today?

Over the long term, I reckon the UK stock market is likely to provide average annual returns of around 6%. That’s a combination of share price gains and dividends. Actually, I think that 6% estimate is probably conservative, but I think that’s better than being overly optimistic.

If you can afford to use up the full £20,000 annual ISA allowance, it would take 24 years to become an ISA millionaire at that rate. That’s spreading out the investment cash over the year, assuming a 6% total annual return, and reinvesting all dividends.

A million to retire on

Even if you’re in your forties, you could still reach a million before you become eligible for your UK State Pension. Isn’t that worth making a serious effort?

But what if you’re only 30, and can still invest the full ISA allocation every year? You could break through the ISA millionaire barrier long before you reach retirement age, and be sitting on a cool £1.6m by the age of 60.

Of course, not everyone has £20,000 to invest every year. But you can still build up a very nice retirement sum with significantly less. If you can manage to invest £500 per month, after 30 years at 6% per year you’d have amassed a fraction under £490,000. Give it one more year, and you could become half an ISA millionaire (well, you know what I mean).

Start during the FTSE 100 crash?

So what about this FTSE 100 crash? The panic is scaring everyone away from the stock market, and turning minds away from long-term financial goals.

If you go against the crowd, and instead see it as an opportunity to make a start by bagging some shares while they’re depressed, it could make that ISA millionaire goal a bit more achievable.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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.