Who Wants To Be an ISA Millionaire?
Most of us will remember the hit TV show, Who wants to be a millionaire, while is was popular thousand of want to be millionaires would rush home to see if they could answer the questions. Most of us have dreamed of becoming a millionaire and regularly tell everyone what we will be spending our lottery winnings on, however the odds of you winning a million are roughly a million to one so what would you say if we told you that the humble ISA could be your chance to reach that magic million.
Now don’t get us wrong this is not a get rich quick scheme, but if you are prepared to put away a few thousand every year and have the patience to watch it grow you are in with a great chance.
Can an ISA Really Make you a Millionaire?
The short answer is yes, by investing in stocks and share, by utilising your tax efficient friend, The individual savings account (ISA) allowance to the max. Not only is it possible, hundreds of savvy savers have already done it and with commitment and time you can join their ranks.
In 2015 Barclays stockbrokers reported that nearly 70 of its clients had achieved ISA millionaire status and there must be many more across their investment platforms. The truth is, none of them achieved ISA millionaire status over night because investing in stocks and shares rarely makes you a quick buck however as the saying goes “slowly slowly catchy monkey”. The downside is that you will need to invest a tidy sum each year. (There’s always a catch)
Credit where Credit is Due
The time it will take you to reach this financial milestone has been significantly reduced now that our Chancellor George Osbourne has expanded the ISA allowance. In the current tax year you will be able to invest up to £15,240 in a stocks and shares ISA, and pay no capital gains tax or income tax on your returns for the rest of your life. From next April things get even better because you will be able to invest a massive £20,000, which is a five-fold rise on Gordon Brown’s original Isa limit of £4,000.
This is definitely a slow burner, a recent report by Fidelity International highlighted it will take just over 24 years to become an ISA millionaire. This millionaire status assumes you continue to invest the maximum ISA allowance, increasing your contributions by 2% every year. It also assumes your savings will grow by 5% year on year, after charges. Your returns could grow faster of course or they may not reach this level, especially while interest rates are so low.
ISA to Grow Because Cash is to slow
If your dream is to hit the ISA million mark you will have to invest in a stocks and share ISA, although the risks are higher than the money in the bank savings plan, the rewards are potential much more lucrative. For example if you had invested £15,000 in the FTSE all share index in February 1996 you would now have the tidy sum of £51,866, compared to a mere £20,345 with the safer alternative. This equates to an extra £31,521, some would say, well worth the risk.
These figures also assume you reinvest all your dividends for future growth, which is of course the secret to long-term savings success. Without this reinvestment the FTSE 100 is still 11% below the 6,930 it hit on December 1999, but when you take into account reinvested dividends this swings to a 70% growth rate.
Back to ISA Reality
The figures shown above are achievable however not every ISA investor will become a millionaire, the majority of savers can not afford to invest £20,000 every year as life tend to throw up a few challenges but there is no harm in having a dream, after all investing £20,000 into an Isa is more likely than winning a million pounds on the lottery.
If you have any questions regarding savings and investments please visit our website where you can get free advice.
THIS BLOG PROVIDES INFORMATION, IT IS NOT ADVICE. ANY OPINIONS ARE GIVEN IN GOOD FAITH AND MAY BE SUBJECT TO CHANGE WITHOUT NOTICE. OPINIONS AND INFORMATION INCLUDED WITHIN THIS EMAIL DO NOT CONSTITUTE ADVICE. (IF YOU REQUIRE PERSONAL ADVICE BASED ON YOUR CIRCUMSTANCES, PLEASE CONTACT US AT HOSKIN FINANCIAL