New research reveals a large proportion of young investors expect to be ISA millionaires by retirement age.
So, what are the chances of young investors hitting this million-pound goal? And what else does the data show? Let’s take a look.
What is an ISA millionaire?
An ISA millionaire simply refers to having an ISA pot worth at least £1 million.
While you can have £1 million stashed in different types of ISA, it’s fair to say that most ISA millionaires will have their wealth held in a stocks and shares ISA. That’s because investing returns have massively outperformed returns from Cash ISAs over the years.
What was revealed about ISA millionaire hopes among young investors?
According to Freetrade, 14% of investors aged under 25 expect to be ISA millionaires by the time they give up work. In other words, one in seven of this group expects to have £1 million in an ISA when they retire.
Interestingly, when looking across all age groups, just 4% expect to be an ISA millionaire at retirement age. This tells us that young investors are clearly a lot more optimistic than other age groups.
What else did the data reveal?
Aside from revealing high levels of optimism among young investors, Freetrade’s research also highlighted how 60% of those investing in an ISA are doing so in order to achieve financial freedom or for retirement. Meanwhile, a third are saving into an ISA in order to build a fund for emergencies.
This suggests that many investors are not planning to rely on their workplace pension when they get older. It also suggests many are keen to avoid putting their hopes on the State Pension. This is perhaps not surprising given that recent research suggests that over half of young people don’t expect to receive any sort of State Pension once their working days are over.
Is becoming an ISA millionaire a realistic goal?
Becoming an ISA millionaire is far from easy. It requires the discipline to save aggressively over many years.
Remember, the amount you can deposit into an ISA each year is limited. While the annual tax-free ISA limit has been £20,000 since 2017/18, it was far lower in previous tax years. In 2015/2016 for example, the annual ISA limit was £15,240. For the 2009/10 tax year, it was just £5,100. And if you think that’s low, in 2007/08 the annual limit was just £3,000!
Despite low tax-free limits during the early ISA years, it’s worth knowing that if you’d saved the maximum into an ISA since launching in 2009/10, you’d now have £201,000 sitting in one.
That figure excludes any interest, so if you’ve benefited from decent returns over the past few decades, it’s possible you’ll have a lot more than this stashed away. In fact, Freetrade suggests that someone who’s invested the max since 2009 (and re-invested dividends) may already be sitting on an ISA pot worth over £1 million if they’ve been particularly lucky with their returns.
Yet, whether or not you’re on track to become an ISA millionaire, Freetrade’s senior analyst Dan Lane suggests that getting into the habit of saving regularly is perhaps just as important. He explains: “Even if a £1million ISA isn’t in your future, the basic habits of monthly investing in a diversified portfolio informed by your financial goals still matter more than the amount in there.”
He continues: “Getting starry-eyed at the big prize and not focusing enough on the groundwork may lead to decisions that are overly informed by short-termism.”
How can you invest in a stocks and shares ISA?
If you’re looking to invest, there’s still time to open an ISA before the tax year ends on 5 April. If you’re planning to open one, take a look at our list top-rated stocks and shares ISAs.
As with any investing, remember that past performance shouldn’t be used as an indicator of future returns. Also, keep in mind that the value of any portfolio can fall as well as rise.
If you’re new to investing, take a look at the investing basics to get you started.
Please note that tax treatment depends on your individual circumstances and may be subject to change in the future. The content in this article is provided for information purposes only. It is not intended to be, nor does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.
Don’t leave it until the last minute: get your ISA sorted now!
If you’re looking to invest in shares, ETFs or funds, then opening a Stocks and Shares ISA could be a great choice. Shelter up to £20,000 this tax year from the Taxman, there’s no UK income tax or capital gains to pay any potential profits.
Our Motley Fool experts have reviewed and ranked some of the top Stocks and Shares ISAs available, to help you pick.
Investments involve various risks, and you may get back less than you put in. Tax benefits depend on individual circumstances and tax rules, which could change.
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About the author
Karl is a writer specialising in investing and personal finance content. He regularly contributes articles on savings, bank accounts, mortgages, and loans. He was previously a Personal Finance Writer for MoneySavingExpert.
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