How to become an ISA millionaire
ISAs and the Personal Equity Plans that came before them have been around since 1987, offering UK residents the chance to save and invest tax-free. Over the years, a number of ISA investors have built up ISA funds worth in excess of £1million, making them into so-called “ISA millionaires”.
To become an ISA millionaire takes steady investment over a number of years, with Nutmeg currently estimating that it could take around 22 to 28 years for a savvy investor to make a million from their ISAs. However, what this means is that if you are willing to take the right steps, you can build up a very significant nest egg over the course of your working life.
We look at the key steps you need to take to become an ISA millionaire.
Invest in stocks and shares
You can simply use your ISA as a savings account, earning interest on the money you deposit. However, to build a million pound pot, you really need to be using your ISA allowance in a way that offers bigger returns.
Putting your ISA allowance towards stocks and shares gives you a much better chance of earning higher returns, although it does usually mean putting your capital at risk. It therefore depends whether you are willing to risk your investment in order to become an ISA millionaire.
Always invest as much as you can afford
For the 2018/19 tax year, the ISA allowance is £20,000 and historically the ISA allowance has increased over time, although there is no guarantee of this. To build the largest ISA pot possible, you should always aim to invest the maximum amount allowed in any given tax year.
Never withdraw money from your ISAs if at all possible
Some ISAs allow you to add and withdraw funds whether you like, other will charge you a penalty fee for taking money out before the ISA expires and some do not allow withdrawals at all.
Whatever the case, it is rarely a good idea to take money out of your ISAs if you can possibly avoid it. It is almost always going to be better for you financially to use any other savings or funds you have first, rather than taking money out of your ISA and sacrificing the tax-free interest or dividends.
Go for slow, long term growth
If you aim to become an ISA millionaire, it is advisable to go for slow, steady growth using reliable investments, rather than high risk/high return investing.
Many ISA investors put their money into large, established companies with growing earnings which are family-owned or where the directors own stock personally in the business. These businesses are generally seen as more likely to be risk-averse, suggesting they will continue to offer steady, if moderate returns over the long time period needed to build up a million pound ISA portfolio.
Find investment ISAs to help you become an ISA millionaire
Looking for ISA investments to help you build a tax-free nest egg? Take a look at the range of investment ISAs on our website to see some of the most attractive options currently available.