Despite the restrictions on how much money one can put in, many investors hold ISAs worth more than £1million.
HMRC has shared insight into its ISA millionaire files following a series of Freedom of Information (FOI) requests by InvestingReviews.co.uk.
The taxman said millionaire numbers fell by a quarter to 1,480 from 2,000 in 2021, however, the average millionaire pot grew seven percent year-on-year to £1,513,000.
The number of investors with over £3million in their ISA jumped 50 percent to 90.
All ISA millionaires are believed to be stocks & shares ISA holders.
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An investor starting from scratch today could expect to reach millionaires’ row in around 22 years by maxing out their £20,000 annual allowance, assuming an average annual compounded return of seven percent.
At the very top of the ISA tree, there are currently 40 investors with pots worth £4million+.
HMRC said their average holdings stood at an eye-watering £7,921,000.
Assuming a seven percent return, it would take approximately 39 years for an investor maxing out their ISA to join the £4million club.
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InvestingReviews.co.uk CEO Simon Jones predicted the dip in millionaire numbers would be temporary.
He said: “We expect ISA millionaire numbers to rebound in the short to medium term as equity markets recover from a period of uncertainty.
“For investors with a long-term horizon, a stocks & shares ISA remains an excellent route to millionaires’ row.”
Hargreaves Lansdown shared tips from three of their ISA millionaires on how they built their wealth.
It should be noted that these investors have been investing for at least 25 years, and with investing, capital is at risk.
1 Picking investments for the long term
MR F from North Yorkshire said: “Be calm. If you are investing in shares, you should do it for the long term and not worry too much about the short-term noise.”
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Overtrading – buying and selling investments too often – can be costly in some situations.
Their website states: “It can be tempting to bank profits or to try to take advantage of short-term dips, but in reality being able to time the market is near impossible.
“Overtrading and trying to predict daily ups and downs can leave you vulnerable to missing out on some of the best days in the market.”
Mr L from Suffolk believes that actively trading is “bad for your portfolio”.
He said: “Depending on the size of the share you buy, you can lose 0.5 percent every time you trade meaning if you trade that stock twice a year, that’s one percent gone immediately.”
Regularly checking in on an ISA and resisting the urge to make a few trades might be tough, but it’s often worth it over the long term.
This is because of a phenomenon called ‘volatility clustering’. Basically, the ‘good’ days in the market are normally pretty close to the ‘bad’ days – they both occur in periods of market volatility.
Aim to skip the bad patches and a person could easily miss out on the potential gains, they suggested.