If you thought becoming an ISA millionaire was a fantasy, think again. There are plenty out there, and recent stock-market falls could be your opportunity to join the club.
AJ Bell Youinvest has just analysed the accounts of 30 ISA millionaires on its platform, and found the average age is 69 (the youngest was a 45-year-old woman). The site’s personal finance analyst Laura Suter said to join the club, you need to save over the long term in a balanced portfolio of stocks, with the average millionaire having 38 holdings in total.
ISA millionaires largely shun expensive collective investments, such as unit trusts. They favour shares, investment trusts and exchange traded funds (ETFs). I’m delighted to see that, because this is the strategy we recommend on the Fool.
Time to think big
Everybody dreams of buying a multi-bagger that makes them fantastically rich on its own, and it can happen. One far-sighted investor bought 60 shares in retail giant Amazon for just £19, at a cost of £1,140. At today’s price of £1,700 they are worth £102,000, up more than 2,000%. Others have bagged similar gains with Google-parent Alphabet and Tesla Motors.
Most of AJ Bell’s ISA millionaires focus on the UK, however, with some winning big on smaller stocks. For example, one posted a 1,940% return from plastic producer Victrex, while digital marketing supplier 4Imprint Group (up 1,800%), and AIM-listed iodine producer Iofina (1,400%) also delivered super-sized returns.
However, ISA millionaires mostly mirrored the Fool’s preferred strategy, by populating their portfolios with top one FTSE 100 dividend-paying stocks. Many are now available at massive discounts, following the crash.
Almost half of the ISA millionaires own Lloyds Banking Group, despite recent disappointing performance. The big attraction is its dividend, which now yields a forecast 7.7%, while its valuation is low, trading at just 6.9 times forecast earnings.
ISA investors clearly love a dividend-yielding bargain, because the second most popular holding is insurer Aviva. It offers a whopping forecast yield of 9.3%, while trading at just 6.1 times forecast earnings.
The next three ISA millionaire holdings are all FTSE 100 dividend bargains. Global bank HSBC Holdings yields a forecast 8.8%, while trading at 9.9 times earnings.
Pharmaceutical giant GlaxoSmithKline has avoided the worst of the sell-off, but it’s down more than 15% since mid-January, making now a buying opportunity. It trades at 13.9 times forward earnings, with a forecast yield of 5%.
Time to be brave
Oil major Royal Dutch Shell rounds off the top five. After crashing 26% in a day, it now trades at 8.4 times forecast earnings, with a forecast yield of 9%.
You don’t have to be an amazingly skilled stock picker to become an ISA millionaire. A selection of FTSE 100 stocks can set you on the way. And now could be a good time to buy after recent falls, provided you plan to buy and hold for the long term.
By investing via your Stocks and Shares ISA allowance, you can take all your income and capital gains entirely free of tax. Maybe it’s time you started investing like a millionaire.