Who Wants to be an Isa mIllIonaIre?

SOME INVESTORS who have made full use of their Isa allowance every year since 1999, and its predecessor the personal equity plan (Pep) launched in 1987, are now millionaires. Sarah Coles, personal finance analyst at Hargreaves Lansdown, said that 168 of its customers now qualify as Isa millionaires, with all their money free of income tax and capital gains tax. She says you do not have to be a stock-picking genius to build large sums inside a Stocks and Shares Isa.

“If you look at the most commonly held funds and shares in millionaire portfolios, they’re not jam-packed with super-high risk assets. They have balanced mainstream portfolios, positioned to take advantage of growth opportunities, without really going overboard.” The most popular shares in million pound portfolios include insurers Aviva and Legal & General, oil majors BP and Royal Dutch Shell, pharmaceutical company GlaxoSmithKline, Lloyds Banking Group, utility National Grid, household goods maker Unilever and mobile phone company Vodafone.

Most Isa millionaires prefer to spread their risk by investing in funds, with top names including Artemis Income, Fidelity Special Situations, Fundsmith Equity, Invesco Perpetual High Income, Lindsell Train Global Equity, Marlborough Special Situations and Stewart Investors Asia Pacific Leaders.

Coles says the key to building a sizeable portfolio is to start as early as you can, invest in stocks and shares rather than cash, and make full use of your allowance. “If you had maxed out your Pep and Isa allowance every year since 1987 you could have contributed a total of £262,760 by now.”

You could also reinvest any dividends back into your portfolio, which compounds the growth on your assets. Remember, if you invest in stocks and shares, your capital is at risk of a market crash. If you are adventurous enough to invest in emerging markets you may reap even higher rewards, but again, the risks are greater.

Coles says don’t go overboard. “If you take big positions in risky stocks or other assets, you need to be prepared for potential losses as well as the possibility of gains.” Don’t keep chopping and changing your portfolio. “Investing is a long-term process and constant switching in an effort to time markets can backfire, and will also bring higher transaction costs.”

She said you must also be prepared to stick out the tough times. “Building a large and successful portfolio is about time in the markets rather than timing the market, so when things are more difficult, the key is to buy rather than sell.”

Figures from Fidelity International suggest you could become an Isa millionaire from scratch by investing your full allowance, although it will take 25 years. It bases its calculations on somebody investing £20,000 every year, with their portfolio growing at a 5 per cent a year after charges.

Investment director for personal investing Maike Currie says the sooner you are able to start investing, the longer your money has to grow. “You benefit from the power of compounding, the snowball effect of generating earnings on top of previous earnings.”