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Here’s how the UK’s ISA millionaires invest their money

How many ISA millionaires are there are in the UK? Estimates put the number at around 1,000, or even more. ISAs themselves were only introduced in 1999, but they replaced earlier PEPs, which had been around since 1987.

So if you started with a PEP in 1987, then transferred it to an ISA in 1999, you’ll have had 33 years of tax-protected investing. And I reckon building up a pot of a million in 33 years is pretty good going. If you’d told me 33 years ago that I could become a millionaire by today, I wouldn’t have believed it. In fact, I didn’t, and I’m not. Don’t make the same mistake.

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Successful ISA millionaires do what we’re always banging on about here at The Motley Fool. They invest for the long term. Forget trying to time the market and catch the big upswings (while avoiding the downswings), as it just can’t be done with any reliability. No, get as much money in as you can, as early as you can, and leave it there for as long as you can. Let the magic of compounding work its spell, and you really could join the ranks of ISA millionaires.

ISA millionaires buy shares

But where do ISA millionaire put their investment money? Well, first up, it’s not into Cash ISAs. That’s not surprising. A Cash ISA, which will typically pay interest of a little over 1% per year, is not the stuff of which millions are made. ISA millionaires typically have maybe a few percent of their money in cash, at most. And that’s likely to be an emergency cash stash for any short-term needs, and very likely some dividend cash that has not yet been reinvested.

Yes, dividend cash, because shares paying steady income figure highly in ISA millionaires’ portfolios. Some will look for long-term share price growth too. But in every interview I’ve ever read with an ISA millionaire, dividend stocks figure highly in their plans.

Stocks and shares generally make up the bulk of ISA millionaires’ asset allocations, with more than half of their investments going into individual shares. Most of the rest goes into pooled investments, and this is where there’s another interesting distinction.

Keep the fees down

Many people investing in managed funds will go for unit trusts. But those are run by fund managers with the aim of generating profits for themselves. Now, our canny ISA millionaires don’t much like the idea of paying fees for someone else’s benefit. So they overwhelmingly plump for investment trusts rather than unit trusts. When you buy shares in an investment trust, you become a part owner of the company. Investment trust managers are working to maximise your profits as a shareholder, rather than their own. And that eliminates a key conflict of interest.

So, buy shares paying good dividends, pay minimum charges, and leave your money invested for decades. Those are the secrets of ISA millionaires – and they’re not very secret at all, really. Oh, and starting during the stock market crash could give you an extra boost.

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Views expressed 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.