Friday 03 March 2023 10:32 am

Who wants to be a millionaire? Isa do! The fund and trust-based savings accounts that have made a mint since 1999

By: Samantha Downes

Share

• Share on Facebook
• Share on Twitter
• Share on LinkedIn
• Share on WhatsApp
• Share on Email

Savers who have ferreted away their annual tax-free individual savings account (Isa) allowance since the scheme was launched in 1999 would have seen some serious returns.

While Isa millionaires, are few and far between there are some funds that have helped savers grow their Isa pots to over six figures.

According to savings platform AJ Bell, just 10 per cent of funds and trusts would have made investors millionaires in the last 24 years.

Laith Khalaf, head of investment analysis at AJ Bell, said Isa millionaires had “saved hard, taken risk, and got lucky.

He added that millionaire-producing investment trusts outnumber open-ended funds by more than two to one

“A full Isa allowance invested each year since 1999 in the average global fund would have produced £684,891,” explained Khalaf.

The average age of Isa millionaires on the AJ Bell platform is 74, but the youngest is 35, said Khalif.

“Now the annual allowance has been increased to £20,000, the £1m Isa pot is that little bit more attainable, though it’s still not easy by any means. “

Based on putting your full £20,000 into an ISA each year and achieving a six per cent annual return after charges, you’ll hit the million mark after 24 years, so you still do need to be long term in your planning.

“If you were lucky enough to get an eight per cent annual return, you’d be hitting the million mark three years earlier, after 21 years,” added Khalf.

“Of course, few people are in the position where they can set aside £20,000 a year, but even if you were only able to do half that amount, the joy of compound returns means you don’t have to wait double the time to become a millionaire. Sticking aside £10,000 a year and getting 6% annual return will get you to the million mark in 33 years. And if you fall short, you’ll still have a sizeable ISA pot to console you.”

The three rules to making an Isa million

There are three things a saver needs to do if they are going to aim for a pot of a million pounds plus.

First, try and as much as you can, up to the full ISA limit each year if possible. The second is to take some risk by investing in the stock market. “If you opt for safer assets producing lower long term returns, it will take you much longer to hit the million pound mar, ” said Khalaf.

The third rule is to start as early as possible, so you get more contributions going into your ISA and enjoy more growth on your investments too. “Isa millionaires have generally had to save hard, take risk, and get a bit lucky to build up such a big pot of money,” he added

All of the 50 Isa millionaire funds and trusts on the AJ Bell platform are exclusively invested in the stock market.

Many focus on the more volatile areas like private equity, smaller companies and emerging markets, so you need to be comfortable with risk to have made it to the million pound finish line.

The average age of ISA millionaires on the AJ Bell investing platform is 74, but Khalaf said the youngest was lying the flag for millennials at the tender age of 35.

“While it’s always interesting to consider the investing habits of ISA millionaires, we shouldn’t get too fixated on the £1 million mark. ISA savings can of course be extremely valuable at more modest levels.”

What are the best performing Isa funds?

Of the 472 funds and trusts with a performance record stretching back to 1999, when ISAs were launched, just 50 would have made you a millionaire from investing your full ISA allowance each year. The majority of these are investment trusts, which account for 35 of the 50, the remainder being open-ended funds.

Investment trusts, or investment companies invest in shares of different companies, along a theme – such as emerging markets or FTSE listed companies – and have their own listing on the FTSE.

Open ended funds, or unit trusts/Oeics, are baskets of shares and rather than buy a share you buy a unit in that fund.

Khalaf said: “Trusts as a whole tend to be more equity focused than funds, including in more niche areas like private equity. They can also use gearing, borrowing money to invest, which over a 24 year period can provide a substantial tailwind to returns. The closed end nature of investment trusts also means they can trade at a discount or premium to the value of their underlying assets. This amplifies volatility, but can also lead to higher returns if the change in discount or premium is favourable between purchase and sale.

“All of the funds and trusts which make it into ISA millionaire 50 are actively managed. This is probably only partly down to outperformance by successful active managers over this period. Passive funds were not as widespread in 1999 as they are today, and so there are relatively few trackers boasting a long enough track record to make it into contention. “

“Tracker funds also don’t generally serve the smaller companies sectors which have proved successful in creating ISA millionaires. There is however one tracker fund which is knocking on the door of the ISA millionaire fund list. An annual ISA investment in HSBC American Index fund since 1999 would now be worth £991,986. Close, but no cigar yet.”

According to AJ Bell an investment in the average global equity fund would have built up an Isa pot of £684,891, helped by exposure to the US stock market.

The average UK fund is trailing some way behind on £539,840, but this still represents an almost doubling of money invested in the ISA. The UK gilts sector, by contrast, has not made a huge amount of headway over and above £283,440, which is the maximum total ISA contribution between 1999 and 2023 (based on ISA allowances at the start of each tax year – occasionally they have changed mid-year).”

Top 10 funds and trusts that would have made you an ISA millionaire

The tables below show the top 10 funds and top 10 trusts that would have made you an Isa millionaire by investing your full ISA allowance on the first day of each tax year since 1999.

The 2023 Isa value is based on prices as at 20 February 2023. The final column compares the value on 20 February 2023 with the value on 5 April 2022, and includes a further £20,000 ISA contribution, as well as investment returns over that period.