Who wants to be an ISA millionaire?

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Please note that tax, investment, pension and ISA rules can change and the information and any views contained in this article may now be inaccurate.

Today’s ISA millionaires have shown a definite preference for investing in individual shares rather than funds, with 83% of their portfolios sitting in stocks, compared with just 14% held in pooled funds.* Those with larger amounts in their ISA may be better placed to take the higher risks associated with investing in individual equities, and have a big enough pool of assets to diversify appropriately. Indeed, the average number of investments held by AJ Bell’s ISA millionaires is 28, showing these investors are putting their eggs in lots of different baskets.

Big blue chip names like Lloyds, Shell and HSBC are the most popular stocks with AJ Bell ISA millionaires. The pandemic has been damaging for the share prices of these cyclical stocks, but recently performance has turned a corner, as a result of the global vaccine roll out. On the other hand Scottish Mortgage, another popular holding, has had a positive year with its holding in Tesla a contributing factor, a stock in which it has now taken profits and lowered its stake. Scottish Mortgage is hardly a flash in the pan though, it’s been a consistent performer ever since ISAs were introduced in 1999.

It’s notable that some ISA millionaires held the LF Woodford Equity Income when trading was suspended, and like all other investors in the fund are still waiting for the final payout. The fact these investors have still done so well despite holding Woodford Equity Income demonstrates that even a fund that performs so poorly needn’t derail a well-diversified portfolio.

It’s not too surprising that ISA millionaires tend to be older, seeing as it takes time to build up such a large amount of wealth in an ISA wrapper. The average age of AJ Bell’s ISA millionaires is 69, though the youngest is just 37. The older age profile may go some way to explaining the popularity of blue chip stocks over tech stocks like Amazon and Facebook, as many of the Footsie’s big hitters will be regular dividend payers, even if the pandemic saw payments cut back, or missed, in 2020.

If a £1 million portfolio yielding 4% generates an income of £40,000 a year, this could be a comfy retirement, especially when you add in state and private pensions.

Today’s ISA millionaires have built up their ISA wealth despite being limited to a maximum £7,000 annual contribution for the first nine years ISAs were in existence. That means they have had to achieve an average 14% annual growth on maximum ISA contributions to break through the £1 million barrier. Now investors can put £20,000 into an ISA each year, over the same period of 21 years, they would need a much more attainable 7% growth to hit the £1 million ISA jackpot, assuming the allowance doesn’t change. That means the ISA millionaires of the future could be more plentiful, and younger.

ISA Millionaires: portfolio breakdown and key stats

Investment portfolio % of total portfolio
Stocks 83.1
Fund 5.3
Investment Trusts 6.4
Exchange traded funds 2.5
Bonds 0.5
Cash 2.3

 

Key stats  
Average age 69
Number of ISA Millionaires 55
Average No. investments 28

Source: AJ Bell, based on AJ Bell customers with more than £1 million in an ISA
As at February 2021

Top ten popular funds and shares with ISA millionaires

Shares Funds Investment Trusts
Lloyds Fundsmith Equity Scottish Mortgage IT
Royal Dutch Shell Baillie Gifford Global Discovery Monks IT
HSBC Baillie Gifford Pacific Blackrock World Mining IT
Glaxosmithkline Baillie Gifford Positive Change Edinburgh Worldwide IT
Aviva Baillie Gifford American Murray International IT
Legal & General Camignac European Leaders Scottish American IT
Tesco First Sentier Glob Emerging Market Leaders Worldwide Healthcare IT
Unilever LF Blue Whale Growth Alliance Trust
Vodafone LF Equity Income AVI Global IT
Astrazeneca N/A * Baillie Gifford Japan IT

Source: AJ Bell, based on AJ Bell customers with more than £1 million in an ISA
*only nine funds were held by two or more ISA millionaires

As at February 2021

The value of investments can go down as well as up and you may get back less than you originally invested. Past performance is not a guide to future performance and some investments need to be held for the long term. Tax treatment depends on your individual circumstances and rules may change. ISA rules apply. These articles are for information purposes only and are not a personal recommendation or advice.


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Written by:
Laith Khalaf

Laith Khalaf is a Financial Analyst at AJ Bell. He began his financial services career in 2001 at Hargreaves Lansdown, where he worked a variety of roles across pensions and investments, covering both DIY and advised business. Laith began to focus on research and investments in 2007, becoming a leading industry commentator. He’s provided daily business bulletins on LBC, is a regular contributor to the financial pages of the national press, and a frequent guest on TV and radio. He has a degree in Philosophy from Cambridge University.