Do you want to be an ISA millionaire ? How long will it take you to be an ISA millionaire ?
Here in the UK we have a fantastic tax free savings scheme called an ISA (Individual Savings Account) which allows people to save up t0 £15,000 per year in a tax free account.
No tax on interest earnt, no tax on capital growth or dividends
The only tax on these accounts Inheritance tax when you die
Prior to July 2014 you could save a maximum of £5,640 in a cash ISA – which enabled you to save in a deposit style account
And a maximum of £11,280 in a stocks and shares or investment ISA which enabled you to save in Unit or Investment Trusts, stocks and bonds.
Yesterday the rules changed, allowing people to save up to a maximum of £15,000pa in either stocks, bonds, funds or cash. (though you can only take out one ISA per tax year)
This is great news for savers.
The first tax free investment wrappers were called PEPs (personal equity plans) and these arrived in 1987
ISAs arrived in 1990 and had a higher allowable investment amount, and also provided a tax free shelter for cash/deposit accounts.
This cash element has proved to be extremely popular with savers in the UK and 75%+ of money saved each year is in these cash accounts which are heavily promoted by the banking industry. Most people are either scared or ill informed and ignore the investment side of things.
However, whilst a cash ISA is a great home for you emergency fund its never going to make you rich.
If you were to invest the new maximum amount of £15,000 annually in cash/ deposit style account it would take you 41 and a half years to turn you annual £15,000 investment into a £million at an interest rate of 2%
If interest rates revert to a more historic average of 4% then it would still take you 33 years !
Whereas if you invested into an UK index tracker such as the FTSE 100 or the FTSE allshare which have returned 7.7% and 11.45% respectively over the last 20 years then you would need to invest £15,000/year for 23 years in the FTSE100 or 18 years in the FTSE allshare to turn £15,000pa into a million.
Now there are people who have already done it. The UK has 100s of UK ISA millionaires
The most famous being the 1st person to be publicly acknowledged to do it Lord Trafford who invested in individual shares rather than funds or trusts.
His most important piece of advice was (don’t take your dividends out of your ISA, as once you take something out – you cant put it back in again)
Dividend re-investment was one of his Key Mantras.
It is the underlying reason why the rich get richer – money makes money!
Now is it simple to be an ISA millionaire ?
£15,000 per person per year over the age of 18
Or £1,250 per month ?
Is that beyond the reach of most people to invest these sorts of amounts – or can it be done through hard work, developing side incomes etc ?
What do you think?