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Funds and trusts that have made ISA millionaires

by LLB Reporter
1st Mar 23 10:50 am

Hust 10% of funds and trusts would have made ISA investors millionaires since 1999, according to new research.

ISA millionaires have needed to save hard, take risk, and get lucky. Millionaire-producing investment trusts outnumber open-ended funds by more than two to one.

Laith Khalaf, head of investment analysis at AJ Bell, comments: “There are basically three magic ingredients to becoming an ISA millionaire. The first is to fund your ISA with as much as you can, up to the full ISA limit each year if possible. The second is to take some risk by investing in the stock market, because if you opt for safer assets producing lower long term returns, it will take you much longer to hit the million pound mark. The third is to start as early as possible, so you get more contributions going into your ISA and enjoy more growth on your investments too. ISA millionaires have generally had to save hard, take risk, and get a bit lucky to build up such a big pot of money.

“Luck may more generously be interpreted as successful fund selection. Saving a full ISA allowance every year since 1999 would have netted you £684,891 if invested in the average global stock market fund; a handsome sum no doubt, but still considerably shy of the £1 million mark. Maximum ISA contributions over this period add up to £283,440, so it’s clear that to get to seven figures, investment returns have to do a lot of heavy lifting. Only 50 funds or trusts would have got you to the magic £1 million mark, out of almost 500 with a performance record dating back to 1999. That’s assuming you were loyal and kept investing in these funds each year and held on to them to the present day.

“Time will help compound returns from the market, but you’ve got to be in it to win it if you want to be an ISA millionaire. All of the 50 ISA millionaire funds and trusts are exclusively invested in the stock market, with many focusing on more volatile areas like private equity, smaller companies and emerging markets, so you need to be comfortable with risk to have made it to the million pound finish line. The good news is the ISA allowance is now significantly higher than it used to be, so there is scope for more people to become millionaires even if they take a bit less risk with their portfolio. The higher allowance may also mean we gradually see the age profile of ISA millionaires falling, because at the moment it’s largely the preserve of the more seasoned members of the investing community. The average age of ISA millionaires on the AJ Bell investing platform is 74, though the youngest is flying the flag for millennials at the tender age of 35.

“While it’s always interesting to consider the investing habits of ISA millionaires, we shouldn’t get too fixated on the £1 million mark. ISA savings can of course be extremely valuable at more modest levels. For instance, if you’re able to build up a £200,000 ISA pot, that could provide you with a tax-free income of £8,000 a year in retirement without even drawing down on your capital (assuming a 4% yield). When added to your private pension and the state pension, that could be a welcome boost to your retirement income that could ensure you don’t spend your golden years counting the pennies. It could also help you ride out any unexpected financial shocks, like the current spike in energy prices. For savers with more immediate financial goals, a Lifetime ISA pot of £30,000 will go a long way to securing a first home.”

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