How to invest like an ISA millionaire

Despite difficult market conditions for investors, the number of ISA millionaires has increased.

According to fund supermarket interactive investor, as of January 2024 it had a record 1,001 ISA millionaires on its platform - an increase of around 17% compared with the same period last year when it recorded 852.

Plus, Hargreaves Lansdown told MoneyWeek there are currently 836 ISA millionaires on its platform- up from 573 in the previous year. Investment platform AJ Bell also saw a 119% rise in the number of ISA millionaires on its direct-to-consumer platform in 2023. 

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ISAs are undoubtedly a great tax-efficient way to save and grow wealth, but for those pumping their long-term savings into stocks and shares ISA, the tax benefits that come with the tax-wrapper are significant and the power of compounding is stronger. You may also be interested in our article on ISAs vs savings accounts.

The average age of an interactive investor ISA millionaire is 74, compared with an average age of 57 for the overall ISA cohort.

Most of the ISA millionaires will have started with what was known as personal equity plans (PEPs) which transitioned into ISAs.

We look at what these long-term ISA holders invested in to help reach the millionaire milestone.

What do ISA millionaires invest in?

Investment trusts account for the largest share of the ISA millionaires’ portfolio on ii’s platform, accounting for 41.9% of their portfolio, compared to around 11% of funds.

Direct equities account for 37.8% of portfolios, followed by 4.1% for exchange-traded products.

When it comes to cash, ISA millionaires are holding close to 50% less in cash, suggesting that ISA millionaires are studiously avoiding the long-term effects of cash drag.

ISA millionaire portfolios on AJ Bell follow a similar pattern. “AJ Bell ISA millionaires have shown a preference for investing in individual shares rather than funds, with 75% of their portfolios sitting in stocks (including investment trusts),” says Dan Coatsworth, investment analyst at AJ Bell.

This is how ISA millionaire’s holdings compare to all ISA holdings according to ii: 

Myron Jobson, senior personal finance analyst at interactive investor comments: “Our data shows that the ISA millionaire status is typically achieved through a well-diversified portfolio rather than cherry-picking risky bets.

“Millionaire ii ISA holders also tend to be early bird investors, giving their money more time in the market to work hard for them. 

Jobson puts the success of ISA millionaires down to “time, patience and the magic of compounding returns,” and believes it's the “not-so-secret strategy to becoming an ISA millionaire.”

“Admittedly, you’d need to be able to afford to invest significant sums, but the principal of patience and diligence is also enriching for those investing more modest amounts.

Although equities also played a big role, for many of the ISA millionaires, the ultimate overseas exposure was via global investment trusts, with Alliance Trust being the most held overall stock amongst ISA millionaires, and Scottish Mortgage in second place. 

When do ISA millionaires invest?

You know the saying - ‘the early bird catches the worm’ - well in the case of ISA millionaires, it really is about getting in early at the start of the tax year.

ISA millionaires are almost as likely to be tax-year early birds as they are to join the last-minute ISA rush before the tax year ends.

Around 40% of total 12-month subscriptions from ii ISA millionaires were added between 6 and 30 April 2023. 

AJ Bell’s Coatsworth advises: “The trick is to start as early as possible with what you can afford to invest. Increase your contributions as you get older, such as when you get a pay rise.” 

ISA millionaire’s top picks

These are the top 10 investments made by ISA millionaires on ii: 

“The list provides exposure to the US and the latterly rampant big technology stocks in particular through holdings of both Alliance Trust and Scottish Mortgage,” says Richard Hunter, head of markets at interactive investor. 

AJ Bell data shows Scottish Mortgage also sits near the top as one of the most popular investment trusts for ISA millionaires on its platform. City of London investment trust is also a popular choice among AJ Bell ISA investors. 

How to become an ISA millionaire

You already know building wealth is a long term strategy and to become an ISA millionaire, you must be consistent and patient.

For anyone starting out now and investing the full £20,000 annual ISA allowance each year with a 5% annual return (excluding fees), they could hit the million pound mark in 25 years.- £1,002,269.08, to be exact.

If your investments grew by 7%, you could achieve £1,048,722.82 in 22 years.

And if your investments saw annualised returns of 3%, it would take 31 years to reach £1,030,055.17.

These are just projections, as investments can go down as well as up - the key thing is to invest regularly to take advantage of pound cost averaging.

It’s also a good idea to spread your risk through various investments. “Having a diversified portfolio is good practice for any investor, including those aspiring to be ISA millionaires,” says Coatsworth. 

“If something goes wrong with one of your holdings, you’ve got the rest of your portfolio to hopefully act as a cushion to minimise the pain.

“Diversification can involve investing in different industry sectors, geographies and asset types. For example, a diversified portfolio might have exposure to shares, funds and bonds from around the world.”