Do you want to know how several Interactive Investor ISA millionaires go about investing their money and make it work for them? According to Interactive Investor, investment trusts are the secret to many of the wealthiest investors in the UK. Around 46% of ISA accounts with millions of pounds are deep into investment funds while only 7% are into funds. Some of the popular investment trusts used by these millionaires are Alliance Trust (LSE:ATST), Witan (LSE:WTAN), and Scottish Mortgage (LSE:SMT).
Understanding What ISA Means
ISA, which is an acronym for Individual Savings Account, is a tax-free way of saving or investing in the UK. And today’s ISA millionaires are really taking advantage of their ISA allowances. Many of these millionaires started out with Personal Equity Plans (PEPs) before ISA was later introduced. One thing that makes investment funds amazing is its considerable proportions of holdings. While many people overlook investment trusts, they tend to add significant values over the years.
Understanding the Performance of Investment Trust
Investment trusts do not usually surpass funds in terms of performance and they are more susceptible to the effects of a falling market. However, over a long period of time, they tend to have a record of adding substantial value. By outperforming funds with one or two percentage once a while, the compound effect over several years can become really significant. No wonder the portfolios of ISA millionaires often baffle newbies in the investment world.
Comparing Investment Trusts and Funds
Over the long run, the performance of investment trusts often outperforms funds. However, there is no assurance that it will continue that way in the future. Comparing the performance of investment trusts and funds over 10 years, investment trusts have outperformed funds by approximately 1.5% per annum. While there are claims that discounts during the financial crash boosted the values of investment trust, research shows that the outperformance goes further back to two decades.
Taking a Look at ISA Millionaire Portfolio
Taking a look at an average ISA millionaire portfolio, 39% of the ISA allowance goes to equity while 46% goes to investment trusts. However, an average regular ISA account holder puts only 27.80% into investment trusts while 21.70% goes to unit trusts. Comparing the unit trusts, an average ISA millionaire puts only 7% into unit trusts. The portfolio of these ISA millionaires shows the high rate of their investment in investment trusts compared to other kinds of asset type.
How Long is Required to Become an ISA Millionaire
The duration of time it will take you to become an ISA millionaire depends on how much of your ISA allowance you are willing to invest, as well as the returns from your investment. If you put the total £20,000 yearly ISA allowance (supposing it remains the same) into investment trusts and you get an annual ROI of 5%, it will take as much as 25 years for you to hit the million mark.
Start Your Investment Trust Journey
Now that we’ve taken a look into ISA millionaire portfolio, you may begin to wonder what are the requirements for you to start your ISA investment journey. First, you need to know that only a UK resident can benefit from the tax-free ISA allowance. Besides that, you need to be at least 18 years old before you can use a Stocks and Shares ISA. We suggest that you should read more about how ISA works to know all the requirements.
Becoming an ISA millionaire is not a day job. It requires a lot of patience and consistency. Besides that, you need to also research extensively to know which top investment trusts or equities you should dabble into. Investing your ISA allowance in different assets is not a quick rich scheme but over the long run, it can become highly beneficial for you. And who knows, you might become one of the ISA millionaires in the future.
Peter Field is a financial analyst and has written for InvestingReviews.co.uk covering topics from pensions, savings, investments and ISAs. His knowledge of the Investment market has proven invaluable, making his unbiased views and opinions open and honest for everyone. In 2021 Peter retired and is working towards enjoying more of the outdoors with his beloved labrador Millie.