How to become an ISA millionaire: 5 key strategies for success

A stocks and shares ISA provides a great way to grow your wealth, without the worry about paying tax on your dividends or capital gains.

But did you know that if you take advantage of your ISA allowance, year in, year out and your investments perform well, it could make you an ISA millionaire?

According to estimates from HMRC, there are now in the region of 5,000 ISA millionaires.

But while it might sound like a pretty exclusive club, more investors are making the cut, with members swelling by 20% since 2022.

What is an ISA millionaire?

An ISA millionaire is an investor who has grown the value of their ISA to £1 million or more.

Reaching this milestone means the entirety of their seven figure portfolio is held within a tax-efficient wrapper, protecting all future growth and income from both capital gains tax and dividend tax.

How to become an ISA millionaire

You don’t have to be an expert stock picker to reach your goal, but you do need patience and a clear strategy.

1. Invest as much into your ISA as you possibly can

Each year, you can invest as much as £20,000 into ISAs. If you paid that maximum into a stocks and shares ISA each year, you could become an ISA millionaire in just 25 years - assuming investment returns of 5% a year.

But if you can’t max out your ISA each year, it doesn’t necessarily mean you can’t achieve the same goal.

According to calculations from Rathbones, an investor that makes the average contribution into their stocks and shares ISA (£7,594 a year), could become a millionaire in 41 years (again assuming a 5% annual return).

Or, if they were prepared to take some more risk with their investment choices and achieved a 7% return each year, their ISA could be worth £1m in 34 years.

2. Be an early bird investor

During ISA season, we’re encouraged to use up our annual allowance before the tax year ends.

However, the most successful investors don’t leave it until the last minute.

If you invest at the start of the tax year, you’ll get approximately a year’s more growth than those that invest at the end.

According to research from Interactive Investor, in 2024 ISA millionaires invested 32% of their total contributions in April, after the new tax year had begun.

3. Invest regularly

If you don’t like the idea of investing a big lump sum into your ISA – or you don’t have the cash available - you can also invest regularly throughout the year.

Drip-feeding your money into the stock market each month lets you take advantage of pound-cost averaging.

This means you’ll buy fewer shares when prices are high and more when they are low, so you get them at an average price over time.

The advantage of this approach is that you’ll see less volatility in your ISA’s performance.

Regular investing also spares you the worry that comes with trying to time lump sum investments, which can put some investors off.

4. Think about where you invest

You don’t need to be an expert stock picker to become an ISA millionaire, but you still need to give some thought as to where you invest.

Trying to pick the next hot thing and investing all your money into it is unlikely to be a winning strategy.

It makes more sense to build a well-balanced and diversified portfolio of investments, with exposure to companies across the globe.

This can be through individual shares, but it may be easier for less experienced investors to use collective investments (such as mutual funds or investment trusts) that buy and sell shares on your behalf.

Here are the top 10 holdings in ISA millionaire portfolios at Interactive Investor:

5. Don’t take money out

If you’re intent on becoming an ISA millionaire, the key is to leave your money invested.

Cash in investments and you’ll interrupt the process of compounding of returns, one of the most significant drivers of investment growth.

This is where the investment returns on your capital are added to your portfolio and start benefiting from investment growth too, boosting the value of your ISA over time (a bit like a snowball rolling down a mountain, getting bigger as it goes).

This can be easier said than done when stock markets are falling and you’re worried about losing money.

However, volatility is a natural part of investing and if you take money out you will only crystallise your losses and miss out on gains when markets inevitably recover.

According to the Barclays Equity Gilt Study, over any 10-year period over the last 130 years, there’s a 91% chance that equities will perform better than cash.

The ISA millionaire strategy: playing the long game

ISA investors don’t become millionaires overnight.

The most successful investors are usually those that are able to take a long-term view, focus on their goal and filter out short-term noise.

In fact, Hargreaves Lansdown says that the average age of its ISA millionaires is 72.

More often than not, time in the market – rather than your stock picking ability – will be the biggest driver of your investment returns.

However, it’s still important to choose your investments with care – ensuring that your portfolio is sufficiently diversified and that you’re taking an appropriate amount of risk.

Talk to a professional

If you aren’t sure how to get started or where to invest, it’s worth talking to a financial adviser.

They will be able to help you set up an appropriate investment strategy to help you achieve your goal of becoming an ISA millionaire, without sacrificing other objectives you might have, like paying off your mortgage or saving for retirement.

Let Unbiased match you with a financial planner that can help.