Wouldn’t it be wonderful to have an investment pot of seven figures? Being able to call yourself an ISA millionaire is something quite a lot of people can already do and I want to be one of them. I began the process a few years ago, and if my maths is correct, I really can achieve this later in life. But there are some common mistakes I see new investors making, and also some tips that I’ve personally found very beneficial.
Before I get into it, I want to clarify what I mean when using the term ‘ISA millionaire’. The term has been used a lot more in recent years, and refers to an investor who has over £1 million in current valuation of stocks and shares. The Stocks and Shares ISA is a specific account as a provision from the Government. It allows investors to accumulate stocks within it without having to pay capital gains tax on the profits when the stocks are sold or any tax on the dividend income received.
Common mistakes to avoid
The most common thing I’ve seen over the years with people trying to become an ISA millionaire is a lack of patience. Let’s assume I’m starting from scratch and plan to invest my full £20,000 ISA allocation each year. Even with an average stock return of 10% per year, it’s still going to take me almost two decades to reach ISA millionaire status. This makes the pursuit of my goal a marathon, not a sprint!
This ties in with long-term investing in general. I mustn’t get too frustrated if I don’t see bumper profits from my first few months. Yes, the stock market crash and subsequent recovery means that achieving high returns in a short space of time has been possible this year. But this isn’t always the case. Sometimes the market may be flat for several months. But having the correct mindset will ensure I don’t make mistakes of pushing too hard to generate high short-term returns. If an investor wants to be a ‘trader’, then this isn’t the right article to be reading.
My tips for achieving the millionaire mark
I’ve tried to do a few things in my pursuit of ISA millionaire status. For example, I’m trying to pick fundamentally strong businesses to invest in. If it’s really going to take me at least two decades to reach seven figures, I want to invest in a company that’ll still be around then! I recently wrote a piece on how Barclays and Diageo are on my watchlist to buy. Both firms have been listed publicly for decades. It’s these types of businesses that I think are the right ones to be buying for achieving the ISA millionaire goal.
Finally, I always try to put funds in my ISA pot that I don’t need for expenses. One of the main elements that helps the value of my ISA to accumulate is compounding over time. If I keep taking funds out of the ISA, this ruins it. Also, the ISA allowance will be used up faster if you reinvest funds you’d already taken out.
So becoming an ISA millionaire is something I’m working towards, and with the above ideas, hopefully others can too!
jonathansmith1 has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays and Diageo. 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.