Who wants to be a millionaire? I do!

A secure financial future can sometimes feel impossible to achieve. But, believe it or not, a couple could become ISA millionaires in just over 16 years. 

Using the current individual £20,000 ISA allowance as a starting base and assuming the annual capital growth is 5% after charges, a couple could see their ISA pot reach £993,615 in 16 years and £1,085,295 in 17 years*.

With the same assumptions, an individual investing their full ISA allowance could see their investment reach £1,002,269 within 25 years*.

We've chosen 5% for this example as, over the very long term, the average annual equity returns are 7% before charges are taken out. While it is very unlikely that returns will be this steady year in, year out – returns are likely to be more volatile - these figures do show that becoming an ISA millionaire in time for retirement is well within the grasp of an individual who starts to invest regularly from age 40-45, or a couple who begin investing from age 50-55.

Three ways to increase the odds

To increase your chances of becoming an ISA millionaire in your retirement, there are a few simple steps you can take:

1. Start saving early

To make the most from your savings, it’s important to get started as soon as you can. This will give your investment the chance to grow over time and allow for the effect of compounding - where the returns on your investment can generate further returns – to work its magic. Likewise, reinvest your dividends for the same reason. Investing early will also allow you the freedom to be more aggressive with your investment, as you won't need to worry about having to withdraw your money in the near future.

2. Save as much as you can afford

There are always demands on our hard-earned cash. Whether it is increased bills, school outings, holidays or a new car – there are often either more pressing things or more exciting things to spend our money on. A good habit to get into is to increase your savings by the same amount as any pay rises as soon as you get them. What you haven't had previously, you won't miss.

3. Do your research

Do spend time researching the best fund managers. The annual rate of return you achieve on your investments after charges will make an enormous difference to how quickly you achieve your goal. We've done some of the hard work for you and, for those who like constructing their own ISA portfolios, the funds we like are all listed in the Chelsea Selection and Core Selection.

Investors who want the asset allocation and fund choices made for them may like to consider one of the new VT Chelsea Managed funds.

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Sam's views are his own and do not constitute financial advice.

*Source: Chelsea research team

Published on 14/03/2018