We’re only a few months into the new Stocks and Shares ISA year. But the number of ISA millionaires in the UK is already reaching record levels. According to a survey by Trustnet, the millionaire count increased by more than 800 last year.
Do they have any investing secrets that most investors don’t know about? They do appear to approach their investments in a few different, but important, ways from the average. But it’s a strategy that anyone adopt.
Trustnet has looked at data from the UK’s three biggest investment services firms, Hargreaves Lansdown, Interactive Investor, and AJ Bell. And all their most successful ISA investors follow a very similar path.
Shares, not cash
Over the past couple of years, UK investors have generally moved away from Cash ISAs. More and more are now investing in a Stocks and Shares ISA.
Why would anyone put their money in a Cash ISA that pays such a tiny amount in interest that it doesn’t even cover inflation? To me, that’s throwing money away, not investing it.
ISA millionaires have known this all along. The big winners have only a small amount of their stash in cash, at about 4.5%, these days. But that isn’t very different from the way they’ve always invested.
It’s the level of money I could see building up in ISA accounts, from regular investments and from dividend income. So I suspect the proportion held as long-term cash is even smaller. ISAs in general tend to have about twice the amount in cash, and even that is a relatively small amount.
Three top traits
Hargreaves Lansdown reckons their Stock and Shares ISA millionaires have three key things in common. For those who’ve been following The Motley Fool for any length of time, they should come as no surprise.
The first is investing for the long term. Ace investor Warren Buffett famously once said “If you aren’t thinking about owning a stock for 10 years, don’t even think about owning it for 10 minutes.“
The next comes naturally from that. Avoid overtrading. For many investors, especially those starting up, the biggest losses come from the cumulative costs of frequent buying and selling. And finally, the most successful ISA investors use as much of their annual allowance as they can.
What other characteristics make Stocks and Shares ISA millionaires stand out from the crowd? For one thing, they make greater use of investment trusts.
Low-cost diversification
When we buy shares in an investment trust, we gain part ownership of the company itself. The fund managers are aiming to maximise profits for the owners… and that’s us. We also get risk-reducing diversification without paying multiple charges.
The millionaires typically shun managed funds, which are more popular among the general ISA population. Those are managed by companies owned by someone else, which means someone else taking the cream off the top.
Above all, successful ISA investors know that trying to get rich quick is a mug’s game. Aiming to get rich slowly is a far more realistic ambition.