Would you like to become a tax-free millionaire? It’s possible, provided you use your annual ISA allowance to the max, year after year.
Thanks a million
There’s no exact record of the total number of ISA millionaires, although there’s generally reckoned to be around 200 by now. Most will have been putting in money every year since the scheme was launched in 1999.
With the allowance now increased to £20,000 a year, you can hit millionaire status faster. But where do you invest? Let’s ask the millionaires’ club.
Forget cash, that’ll never make you super rich. New research from Interactive Investor shows stocks and shares are the way to do it, as they make up almost 60% of the average ISA millionaire’s portfolio, as you can see from this table.
|
Asset Type |
% portfolio |
|
Direct equities |
59% |
|
Investment trusts |
23% |
|
Unit trusts |
7% |
|
Cash |
7% |
|
ETFs |
3% |
|
Bonds |
1% |
That’s no surprise as direct equities offer the greatest potential returns over the longer run. Over the last decade, the UK All Companies has delivered a total return of 170%. With cash, you’d be lucky to have 10%.
Nice spread
Interactive Investor said its average ISA millionaire has a surprisingly high 34 holdings in their portfolio and makes 46 trades per year. This is five times more than a typical ISA customer, although of course their holdings are vastly larger.
The site’s head of investments Rebecca O’Keeffe says: “When you have a large portfolio and most of your assets are in directly held equities, you will want to choose a broad variety of different stocks to generate exposure to different sectors.”
ISA millionaires love investing, and with good reason. They’ll buy or sell when they see a good opportunity. Trading less than once a week when you have a cool £1m in your portfolio seems quite moderate.
Blue-chip portfolio
So what are they buying? Inevitably, the big FTSE 100 blue-chip stocks are heavily represented, with oil major Royal Dutch Shell the most popular, followed by GlaxoSmithKline, Lloyds Banking Group, Aviva and Legal & General. These are all top income stocks with generous yields. In the long run, dividends will power your quest towards your ISA millionaire status, provided you reinvest them for growth.
For me, the real surprise is the popularity of investment trusts. It shouldn’t be, given that I’m a long-standing fan, but I’m still impressed by how well they’ve done. Here are two investment trusts that could have made you a stocks and shares ISA millionaire on their own. And while I am at it, here are two more millionaire makers.
The Scottish play
Global investment trust Scottish Mortgage is a favourite of mine, so at least that’s one thing millionaires and I have in common because it’s their number one investment holding. Primary Health Properties, HICL Infrastructure, Worldwide Healthcare Trust and Templeton Emerging Markets complete the top five.
Unit trusts are better known but, fascinatingly, investment trusts have outperformed them by more than 2.5% a year on average over the last 20 years. That’s a serious long-term outperformance. ISA millionaires recognise this, so it’s time others did too.
The most important thing to remember is that nobody becomes a millionaire by leaving their money in a cash ISA earning 1% a year.
