Maximise your full ISA allowance every year, and – assuming an annual growth rate of 5% - you can expect to become an ISA millionaire in less than 30 years.
Up this growth rate to 7% a year – possible with a diversified portfolio of high yield bonds, dividend paying stocks and alternative investments such as infrastructure – and this growth trajectory drops to just 25 years.
The most important thing to remember when it comes to ISA investing is start early. Children aged under 18 are eligible for a JISA, a tax efficient children’s savings vehicle which can start them on the path to investment success.
ISA savers should also take care to maximise their contributions, and where possible invest in income paying assets. This yield can then be reinvested, accumulated, and the power of compound interest can boost your long-term savings.
A vigilent approach to personal finance and money management can free up extra cash to invest into your tax-efficient savings. Do you shop around before renewing insurance policies? Use a cash back credit card? Fixed the rate at which you pay to heat your home? These everyday savings can be turned into regular monthly deposits into an investment ISA.
Tom Stevenson, investment director at Fidelity Worldwide Investment recommends fledging ISA investors start with funds, rather than individual securities, to make the most of sectors and reduce your risk.
“Investing in individual stocks or bonds comes with significant risks. Tie all of your money up in one company’s stock, and you could lose everything overnight in the worst-case scenario. The best route to building up your savings pot and managing your risks is investing through funds, which give you access to the market without tying your fate to a single security,” he said. “As you reach your savings goals through investing in your ISA over time, it’s even more important to diversify.”
Wealth manager Brewin Dolphin has 15 ISA millionaire clients, and a further 40 customers who have built up tax efficient ISA pots of more than £750,000.
Guy Foster, head of Portfolio Strategy at Brewin said, “Saving in a tax efficient wrapper remains one of the most compelling ways of realising your long term financial ambitions. During its life, the WMA Balanced Total Return index has returned compound annual growth of 8.5% - despite the so-called lost decade for equities after 2000.
“Even now, with the FTSE paying seven times as much income as bank deposits, we have assumed a more conservative 5% return and still an investor using their full ISA allowance each year could be a millionaire in 27 years with no tax to pay on their gains. The importance of compounding, and the benefits of tax efficient saving, can deliver life-changing wealth to those who seize the opportunity.”
