Have you started saving or investing in an ISA? You’re probably wondering how long it would take to become an ISA millionaire. After all, most of us could live off a million-pound portfolio pretty comfortably.
In this article, we are going to take a look at how many ISA millionaires there are currently and how long it will take to become one. We’ll also give you some tips for getting there as fast as possible.
Quick Overview
If you max out your ISA with £20,000 each year and invest in broad index funds earning 7% per year, you can expect to reach millionaire status within 22 years. At a 5% return, it would take roughly 25 years to reach the 1 Million Pound mark.
What Is An ISA?
An ISA (or Individual Savings Account) is simply a type of savings and investment account you can have in the UK. Think of it like a protective bubble. Anything inside this bubble (like your savings or investments) doesn’t get taxed. So, if you’ve ever had that sinking feeling of seeing taxes diminish your hard-earned returns, an ISA is your tax-free sanctuary.
But why should you consider having one? Here are the perks:
- Tax-Free Growth: The main benefit, and probably the biggest attraction, is that any money you make from investments or interest is completely tax-free.
- Flexibility: There’s a range of ISA types, including cash ISAs where your money is kept just like in a regular savings account, suiting different needs and risk appetites.
- A Safety Net: Since they’re designed to protect your money, ISAs can act as a financial cushion, ensuring that your savings remain untouched by taxes.
In a nutshell, ISAs are an invaluable tool in your financial toolkit, offering a tax-efficient way to save or invest. However, always consider your own financial circumstances and maybe chat with a financial advisor to see if an ISA aligns with your goals.
Personally, I plan to max out my ISA every year until retirement allowing me to take large monthly dividend payments without having to pay any tax on the income.
How Many ISA Millionaires Are There?
Currently, there are 4,070 savers who have reached ISA millionaire status as of April 2021 according to HMRC figures. The stock market has seen a slight rise since April 21 so we are likely to see that number be slightly higher in 2023.
The average ISA millionaire is sitting on a pot of £1,397,000.
Honestly, when I first saw this number I was shocked at how small it was. What I didn’t realise is the ISA limit was not always £20,000.
The ISA was released in 1999 and started with an allowance of £7,000 for Stocks and Shares ISAs and £3,000 for a Cash ISA. In 2017/18 the limit was increased to £20,000.
So those who have reached millionaire status have been able to do it in 24 years with a limit of £7,000 for most of those years. That’s impressive returns. As time goes on we are likely to see the number of ISA millionaires grow significantly.
How Long To Become A Stocks & Shares ISA Millionaire
Let’s take a look at how long it would take to become an ISA millionaire by maxing out your contributions each year while investing in a low-cost index fund.
If we assume a 7% rate of return while investing £1,666 per month, it would take you just under 22 years to reach your goal.
Of course, not everyone has the ability to max out their ISA each year when they start investing. It’s important to realise that the earlier you start investing, the more you will benefit from compounding over time. Getting started early is the key even if you can only contribute a fraction of your allowance.
If you invested £400 per month at a 7% return it would take you 40 years to reach ISA millionaire status.
How Long To Become A Savings ISA Millionaire
If you opt to only stay in a Cash ISA which offers interest on your money, your growth will likely be a lot slower. However, right now there are some great rates available in the market.
In a Cash ISA you can currently get around 4.5% returns on your money. If this continues you could reach ISA millionaire statis in just under 27 years. However, it’s unlikely you will be able to get a 4.5% interest rate consistently for the next 27 years. Historically the stock market has been a better way to grow your wealth over long periods of time.
How To Become An ISA Millionaire Faster
There is no doubt becoming an ISA Millionaire is no easy feat. Getting there is going to take planning and dedication. Let’s take a look at how you can get to your goal as quickly as possible.
Max Out Contributions
The fastest way to grow your ISA is by contributing as much as you can, especially in the early days. The earlier you can get your contributions in the more time that money has to compound.
If you can make sacrifices in your younger years to maximise your contributions you will get to the million-pound goal significantly earlier.
Set Up Automatic Contributions
Personally, I would recommend setting up automatic monthly contributions to your ISA account on the day your pay lands in your account. If you treat your contribution like a bill you will learn to live around it and use what is remaining.
I see a lot of people say they will invest what they have left over at the end of the month but that usually amounts to nothing. If we have it, we spend it. Removing it from your personal account prior to any other spending allows you to remove the temptation of spending it.
Ensure what you are contributing each month fits your budget beforehand.
Spread Your Risk
If you want to avoid losing vast sums of money while investing I would personally avoid trading single stocks. Simply investing in low-cost diversified index funds is one of the most reliable ways to build wealth over time.
These low-cost index funds can be found with any reliable broker and can cost as little as a 0.12% management fee. While I can not give financial advice, I can share what I invest in. The main fund I have in my ISA is the Fidelity Index World through Hargreaves Lansdown.
Invest In Low-Cost Funds
As mentioned above it is important to invest in low-cost funds. You will see a lot of funds with 1-2% management fees which might seem small but this significantly decreases your final portfolio value over time.
For example, investing £1000 per month for 25 years at 7% give you a total portfolio balance of £810,071. At a 5% return, you would only have £595,509. That’s over £200k gone simply through fees and that gap only gets bigger the longer you leave the money to compound.
Use A Low-Cost Brokerage
Some brokerages will charge you fees to invest and manage your funds while others will manage them for a low cost or free. The broker you choose will depend on your personal circumstances.
Some brokerages offer free trading on stocks while others will take a management fee each year. Make sure to do your research before signing up for one.
Personally, I use Hargreaves Lansdown as they’re a FTSE 100 company who have stood the test of time. While their fees can be slightly higher than other platforms they’re still cheap enough when it comes to investing in funds. I’m also willing to pay the premium to ensure the safety of my investments.
Hargreaves Lansdown is one of the most trusted investment platforms in the UK. They offer amazing customer service with access to someone on the phone at any time. However, these come at a high price in terms of fees.
Final Thoughts
You should now have a better idea of the timeline required to become an ISA millionaire. Hopefully, some of our tips can help you stay disciplined with your investing and maybe help you reach your goal even faster.
Read More From MoneySprout:
To James. These are my thoughts on your post
The statement “trying to FIRE solely by building online assets” lacks specificity, creating uncertainty about the actual strategy.
Empty Boasting:
The mention of a £86,000 stock portfolio by age 26 lacks substance, as the post fails to offer insights into the methods employed, potentially coming off as empty bragging.
The post may give an unrealistic impression that achieving financial independence and early retirement through online asset building is a straightforward feat.
The tone throughout appears overly self-congratulatory, lacking humility and relatability.
The post could benefit from clearer and more concise language to convey a direct and meaningful message, avoiding unnecessary ambiguity.
That’s literally the bio under my name. I don’t mention once in this post about my personal financial situation. This post simply outlines the numbers required to become a millionaire with an ISA.