“Don’t worry, Rodney. This time next year, we’ll be millionaires!”
That was one of the famous quotes from Del Boy in TV comedy classic Only Fools and Horses.
It will take more than a year if you decide to make the most of Individual Savings Accounts (ISA) but with the annual deadline being 5 April, time perhaps for a start.
Eventually you might aspire to be one of the increasing numbers who have joined the ISA seven-figure club.
Their average age is 71. Two thirds are men. Blue chip companies, including Lloyds, Shell and BP, dominate, all held in diverse and balanced portfolios.
So, what is the secret?
There are more than 500 such investors with broker Hargreaves Lansdown alone.
The firm recently grilled three of their ISA millionaires. All had been investing for at least 25 years.
It went on: “We found lots of differences – some preferred buying shares, while others liked the more hands-off approach of placing their money with a trusted fund manager. A couple of our ISA millionaires had changed their strategies over time, while one stuck with the advice of his grandfather.”
Picking investments for the long term (over five years) is one of the traits in common.
Contributing the maximum amount to an ISA each year – currently £20,000 – is another.
Not overtrading is a third, which produced plenty of comment.
One of the millionaires, Mr L from Suffolk, stated: “I strongly believe actively trading is bad for your portfolio. Depending on the size of the share you buy, you can lose 0.5 per cent every time you trade meaning if you trade that stock twice a year, that’s one per cent gone immediately.”
Hargreaves Lansdown commented: “Regularly checking in on your ISA and resisting the urge to make a few trades might be tough, but it’s often worth it over the long term. This is because of a phenomenon called ‘volatility clustering’. The ‘good’ days in the market are normally pretty close to the ‘bad’ days – they both occur in periods of market volatility. Aim to skip the bad patches and you could easily miss out on the potential gains.”
It added: “Overtrading – buying and selling investments too often – can be costly. It can be tempting to bank profits or to try to take advantage of short-term dips, but in reality being able to time the market is near impossible. Overtrading and trying to predict daily ups and downs can leave you vulnerable to missing out on some of the best days in the market.”
The current generation of ISA millionaires have built up their fortunes despite being limited to a maximum £7,000 annual contribution for the nine years following the launch of ISAs in 1999.
According to website This Is Money, quoting the Association of Investment Companies, 28 of its members would have made investors millionaires if they had put the full annual ISA allowance into the same firm each year.
For example, investing the full ISA allowance annually from 1999 to 2020 – a total of £246,560 – and reinvesting the dividends into Scottish Mortgage would have generated a tax-free pot of £2,541,100 by January 31, 2021, more than ten times the original investment.
The broker, AJ Bell, expects it to become even easier to be an ISA millionaire as previously you needed to achieve an average 14 per cent annual growth on maximum ISA contributions. Now you can hit the jackpot with just seven per cent growth over the same period of 21 years.
Not a case of getting rich quick. In complete contrast, a case of getting rich slow.