ISA millionaire numbers are set to explode in the coming years, according to new research commissioned by InvestingReviews.co.uk.
Statistical modelling found that millionaire numbers across the UK’s three leading investment platforms will double over the next eight years, and by 2031 Stocks & Shares ISAs will be creating more millionaires annually than the National Lottery.
Britain’s first ISA millionaire Lord Lee of Trafford said of the findings:
“The ISA remains the best investment wrapper in the Western world, and I hope this data will encourage more young people to take-up serious long-term investing rather than crypto currencies.”
InvestingReviews.co.uk commissioned Marie Oldfield (pictured), a forecasting and probability expert chartered by the Royal Statistical Society, to examine the likely growth of millionaire numbers based on data provided by Hargreaves Lansdown, AJ Bell and Interactive Investor — who together reported 1,365 millionaires on their ISA books this year.
Examining periods of moderate volatility, Ms Oldfield found it would take eight years from now for the current number of ISA millionaires across major platforms to double to more than 3,000.
Two years after that, the number of investors joining millionaires row each year is expected to average 322, more than the National Lottery which currently creates six millionaires a week across all games.
By 2046 — 25 years from now — the total number of ISA millionaires created in the UK is forecast to increase tenfold to nearly 15,000, finally eclipsing the total number of lottery millionaires created since the game began in 1994.
Ms Oldfield – whose model assumed modest annual compounded growth of five per cent – said:
“Our data shows the path to riches is likely to be far quicker if you put your money in a Stocks & Shares ISA every month, instead of handing it over to Camelot.”
Her analysis comes as savers look to protect themselves against inflation, with the Chancellor Rishi Sunak warning in his budget speech that the cost of living is set to rise even further in the coming months.
Individual Savings Accounts were introduced under New Labour in 1999 allowing investors to earn interest and dividends free of income and capital gains tax. The current annual maximum allowance is £20,000.
A Stocks & Shares ISA holder maxing out their allowance can expect to smash through the seven figure mark in just under 25 years assuming average compounded growth of five per cent.
Last year HMRC reported that more than a third of Stocks & Shares ISA holders were maxing out their personal allowance.
In 2003, Lord Lee – a former Conservative MP – made headlines when he became the first armchair investor to amass a £1 million pot.
He began his journey in 1987 after Margaret Thatcher’s Chancellor Nigel Lawson launched the Personal Equity Plan (PEP) — a forerunner to the ISA.
Incredibly, his total contributions over the 17-year period it took him to reach £1 million were just £126,200.
Now 79, he has pared back his annual ISA investments, and while too modest to reveal the size of his current pot, it was reported in 2015 to have reached £4.5million.
Lord Lee spoke of his hope that Investing Reviews’ research would inspire a new generation to follow his path to financial freedom.
“Unless there is a major crash in the markets, there will undoubtedly be more and more ISA millionaires created every year as pots continue to compound.
“To be a successful investor in my view you need two things: common sense and patience. Patience is the most important, and it’s the one thing that most people don’t have.
“I’d like to see more encouragement given to ISA investors starting off.”
Simon Jones, CEO of InvestingReviews.co.uk, said:
“These days everyone wants a rock star lifestyle and their very own place on millionaires’ row. Happily that dream looks set to come true for the canny army of armchair investors who have been squirreling money away in their Stocks & Shares ISAs every year.
“In the race to join the rich list, ISA millionaires are fast turning the tables on lottery players. ISA millionaires numbers are going to explode in the years ahead.”
Lord Lee became a hero of armchair investors around the UK when he emerged as the country’s first ISA millionaire in 2003.
He revealed his good fortune in a Financial Times piece published in December of that year, making stock market analysts everywhere sit up and take notice.
As he pointed out in his column,
“The wealthy seem to regard them [ISAs] as a pointless chore, perhaps because they think the investment ceilings are too low to justify the efforts involved.
“The less well-heeled tend towards a rather inconsistent approach investing in some years but not in others… both are wrong.”
Lord Lee – a Conservative MP for Nelson and Colne from 1979 to 1983, and then for Pendle until 1992 – began maxing out his annual allowance beginning in 1987 when ISAs were known as PEPs.
His total investments over 17 years were just £126,200, yet he managed an annual average return of 21 percent despite a stock market crash in 2001.
By the time he came to write his FT column – republished in his 2014 book How to Make a Million — Slowly – his pot had ballooned to £1,015,843.
Now a Liberal Democrat peer, Lord Lee says he is “old-fashioned” in his approach to investing, eschewing off-the-shelf funds and backing himself to pick his own winners instead.
While devotees of index tracker funds insist you can’t beat the market, Lord Lee begs to differ.
His largest single holding is Treatt, which specialises in natural extracts and ingredients for the beverage, flavour and fragrance industries. Treatt has seen its share price jump more than 1,000 per cent in the last decade.
In his long years as an investor, he has made a point of avoiding fashionable Silicon Valley tech stocks, preferring to invest only in UK-based companies, albeit those with a global focus.
Talking to InvestingReviews.co.uk, he said:
“I feel the argument in favour of tracker funds is substantially overrated. I encourage people to back their own judgement which in many cases may turn out to be better than they think.
“I’m a great believer in UK equities. I find it’s easier to get to know a UK company than one which is overseas. You can attend their AGMs and get to know management.
“But most of the UK companies that I invest in trade internationally. There’s only one or two stocks I have that are entirely focused on the UK.
“I’ve never participated in tech stocks myself which might have been a mistake in the past, but then again I’ve always been a more traditional conservative investor.
“I like the compounding of dividends in my ISA, and most tech companies in their start-up years don’t pay dividends.
“My own view with the tech companies is that the best has already been seen.”
He has a word of warning too for those tempted to put their money into ESG funds, saying: “It’s going to be a long time before people who invest in those funds actually see real financial benefit. I’m sceptical and would urge caution.”
How big is his famous ISA today? “I’m only prepared to say it has grown significantly.”