May 2021

How simple is it for you to actually become an “ISA millionaire”?

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Many financial advisers and stockbrokers talk about the idea of becoming an “ISA millionaire”, and achieving the target of building a tax-efficient investment pot with a value of more than £1 million.

This conversation reaches fever pitch during “ISA season” in March, as asset managers encourage clients to make the most of their ISA allowance before the end of the tax year.

But just how achievable is the ISA millionaire goal? Is it easy as some would have you believe? Or does it take a bit of work?

Becoming an ISA millionaire is achievable

Certainly, becoming an ISA millionaire is a tangible possibility.

Across three of the biggest investment platforms in the UK, just over 1,300 clients have amassed an ISA worth over £1 million.

Nearly all of them are over retirement age, with a few notable exceptions, and they’ve all managed to amass their pot by making well-timed investment decisions over a period often spanning decades.

Realistically, it’s probably true that your best chance of hitting the £1 million mark is by fulfilling the ISA subscription every year for a prolonged period. Of course, this assumes steady, consistent growth for your investments every year.

Assuming your investments achieved growth of 5% a year, and you invested the full £20,000 – the current ISA allowance – into your ISA every tax year, you would reach the £1 million target in 25 years. Strong market performance could see you achieve the goal sooner, with growth of 7% a year bringing down the waiting period to 21 years.

By maximising your ISA subscription every year, it’s certainly mathematically possible to become an ISA millionaire.

Average income means you may have to wait a bit longer

While you may not have £20,000 a year to invest in an ISA, you can still reach the £1 million target by investing smaller sums.

Financial planners often advise their clients to try and save 10% of their income a year. According to the Office for National Statistics, the average income after tax was £30,800 in the 2019/ 20 tax year. This means most people could conceivably put £3,080 toward their ISA a year.

According to Morningstar, an investment of this size would take 51 years to return £1 million, assuming 5% growth and increasing the invested amount by 2% per year for inflation.

Of course, while this still makes it possible, the longer time frame means you likely won’t have your £1 million until you retire.

A Junior ISA could make it possible for a child

One way to circumvent the need for a longer timescale is to start as early as possible. If you have children, you may be able to help towards the £1 million target from the day they’re born.

Imagine investing that same £3,080 in a Junior ISA (JISA) from your child’s birth, assuming 6% growth per year and that you increase your investment by 2% each year for inflation.

Provided that your child continues to invest at the same rate when they take over the account aged 18, Morningstar estimates that they could be an ISA millionaire aged 46.

Compared with the 51 years it would take you from around age 18, a JISA does present a potentially better way to achieve the goal for your child. Being younger and still in the middle of their life, this money could even be more useful to them than it would be for you in retirement.

Starting early and staying invested is your best chance

All in all, becoming an ISA millionaire is possible. Provided that you start early, consistently save and invest, and are willing to wait to reach your goal, you could become an ISA millionaire in your lifetime.

However, investing in ISAs doesn’t have to be about becoming a millionaire. Indeed, it’s more about making the most of the money you have, and investing in an ISA is still a good way to do this.

While building a £1 million ISA may be a distant goal, the timescales demonstrate how starting early can be a good strategy for making the most of your money. In essence, the more time you give it, the greater chance your portfolio has of growing.

It also shows the importance of remaining invested across that period, even when markets dip. Time in the market can be just as important as timing the market.

Analysis from investment platform Nutmeg strongly supports this. They found that the risk of making a loss on any stock invested in the global markets drops to almost 0% after 13 years of holding it. Meanwhile, the probability of positive gains is nearly 100% across the same period.

Starting early and remaining invested in your ISA can be a good strategy for giving your money a boost, regardless of how much you have to invest and what you want to achieve.

Work with a financial planner

It can be difficult to know how to get started investing, or how to make the most of money you’ve already invested in the market.

At Holborn Financial we can help you with these decisions, looking at how much you can afford to invest and guiding you through your investing journey.

We can design a tailored portfolio specifically for you that suits your attitude to risk alongside your desire for growth.

If you’d like to know how we could help you with your ISA, email info@holbornfinancial.com or call 020 8946 8186.

Please note:

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.