Most people would love to have a million pounds or more within their ISA and be able to retire without having to worry about their savings. Just imagine what you could do with that kind of money in retirement – regular meals out at good restaurants, golf trips, shopping trips, luxury holidays abroad…
The good news is that if you save regularly, and invest your money wisely, a million-pound ISA portfolio is certainly achievable. Here are some basic calculations that prove it’s possible.
ISA millionaire calculations
Let’s start by assuming you can grow your money at 8% per year over the long run (more on how to achieve this below).
According to my calculations, if you were to save £300 per month, or £3,600 per year, and you earned 8% on your money, you’d hit that million after 41 years. In other words, if you began saving £300 per month aged 25, by 66, you’d be a millionaire.
If you were able to save £500 per month, or £6,000 per year, and you generated a return of 8% on your money, you’d hit one million after 35 years. That means by saving £500 per month at 30, you’d be a millionaire at 65.
Finally, if you were to boost your savings to a huge £1,000 per month, or £12,000 per year, and generated a return of 8% per year, you would arrive at one million in just 27 years, meaning you could start saving in your early 30s and you’d be a millionaire by 60.
As you can see, with a regular savings plan a million pound ISA is certainly achievable. But how do you generate an 8% return on your money? After all, the best cash savings accounts only pay around 1.5% p.a. in interest right now.
How to generate a return of 8% per year
The answer is simple. You’ll need to invest your money rather than just stick it in a savings account. This means putting your money into growth assets such as shares and funds. Yes, these kinds of assets are riskier than cash savings, but when it comes to investing, risk is related to reward, and these assets have historically generated excellent returns for investors.
With the right mix of growth assets, an 8% return per year shouldn’t be too hard to achieve. The key, in my view, is to build a portfolio that has exposure to a number of different growth assets.
An investment in a FTSE 100 tracker fund probably won’t be enough. You’ll also want to have some exposure to international markets, such as the US, where many world-class companies are listed, as well as some exposure to smaller growth companies, as these tend to generate strong returns over time.
Get your asset allocation right, and you’ll give yourself a great chance of hitting the magic million mark down the track.