Britain’s most dedicated Isa investors have racked up pots worth more than £11million each, overtaking the UK’s biggest pension pot.
The 25 Isa investors in the UK have built up an average fortune of £11.6million over a 34-year period, a Freedom of Information request from wealth manager RBC Brewin Dolphin reveals.
Some of the Isas will be worth even more than £11.6million.
A fortune this big could only be gained through investing in stocks and shares and investors would have needed to achieve an average annualised return of 18.9 per cent over the 34 years.
Golden returns: There are 25 Isa inevestors with pots worth an average of £11.6million each
How did they manage it?
Isas were introduced in 1999, replacing their predecessor Personal Equity Plans (PEPS) which were launched in 1987 by then chancellor Nigel Lawson with an annual allowance of £2,400.
PEPs investors were allowed to lump their money into the new tax wrapper.
Jason Hollands, a director of stockbroker Best Invest said: ‘Isas will be 25 years old on 6 April, so anyone with 34-years of Isa savings must also have had investments made in PEPs.
‘PEPs first became available in 1987, so together that is 37 years of allowances so far.’
He adds; ‘There were two annual PEP allowances each year, a General PEP (which ended up at £6,000 and from 1991 an additional Single Company PEP of £3,000 (which could only be invest in an individual UK company share).
‘Together the PEP allowances were £9,000 (higher than the initial £7,000 Isa allowance). PEPs were merged into Isas on 6th April 1999.’
Beginning in 1987, an investor would have needed approximately 20 years to reach £1million with contributions of around £127,200 assuming an 18.9 per cent annualised return after fees.
It would have taken a further eight years to reach £5million on contributions of around £215,520.
The £11.6million figure would have been reached after 34 years on total contributions of just £310,760, according to RBC Brewin Dolphin.
Rob Burgeman, investment manager at RBC Brewin Dolphin, said: ‘We’ve been tracking the fortunes of the country’s Isa millionaires for twenty years now, and our research tells us they all have one secret in common.
‘They all built their fortunes through stocks and shares investing.’
Jason Hollands said: ‘Given that UK equities, as measured by the MSCI United Kingdom Index, delivered an average annualised return of 7.4 per cent over this time, and global equities an average annualised return of 8.2 per cent, those amassing such sums certainly weren’t using index trackers and have must have made some very astute – or possibly lucky – investments over the years.
‘In reality, it’s near impossible to make such high returns on a consistent basis and anyone owning investments for such long-time skills probably didn’t buy and hold on to the same funds or trusts.
‘In the days of PEPs, investors were restricted by how much they could invest outside of the UK.
‘It is more likely that they had some serious successes occur on the way and gains were locked-in, perhaps from individual shares.
‘For example, they may have done well from periods like the dot com bubble, making sure they jumped off before it burst.’
Rob Burgeman said: ‘An annualised return of almost 20 percent is substantially more than equivalent indices, so it is safe to say that it was unlikely to be achieved via investing in an index tracker.
‘Instead, it could either be an incredibly successful trader or, alternatively, someone who has invested either in their own company or in a smaller growth stock. Either way, while successful, it has undoubtedly been a higher risk strategy.’
Number of Isa millionaires rising
The number of Isa millionaires tripled between 2020 and 2021. The latest figures from HMRC show that a record 4,070 investors had an Isa worth £1million or more during this period. The average Isa millionaire has a pot of £1.39million.
Lord John Lee of Trafford – an expert stock-picker – became the first Isa millionaire in 2003, reaching the seven-figure milestone on contributions of £126,200 made over 16 years. His annualised returns during this period were 21 per cent.
Investment platform AJ Bell says its Isa millionaires tend to invest in individual shares rather than funds, with 75 per cent of their portfolios sitting in stocks – including investment trusts.
Dan Coatsworth, investment analyst at AJ Bell said: ‘Dividend reinvestment has historically been a way to supercharge returns in an Isa portfolio thanks to compounding benefits.
‘Using dividend money to buy more shares allows an investor to increase their ownership of a stock without investing more capital.’
