"The secrets of the ISA millionaires"

[Lootman]

Frankly surprised that anyone would be identified as an ISA millionaire on one platform. Given that most sensible (and I take it that if you’ve saved/made £1m you’re sensible) investors would spread risk, does that mean that most of these “millionaires” are multi-millionaires?

Yes, I would imagine that those with a million in an ISA would mostly also have taxable accounts, retirement accounts, BTLs and so on.

And a married couple subscribing £40,000 in new money a year to ISAs are probably, as in our case, funding much of that by selling existing taxable holdings within the annual CGT-free allowance AKA "bed and ISA".

So that said, I do not see a reason to split an ISA of that magnitude across multiple brokers.

[tjh290633]

Then Gordon Brown changed it all with ISAs as we know them today, initially at £7,000 per year, either in cash, shares or both, but not more than £7,000 in total paid in per year.

I think when ISAs were new the cash was capped at £3k.
https://www.thetimes.co.uk/article/how- ... -gr0v9b2hk

I transferred £9,000 from a matured TESSA into a cash ISA in 2001. I was putting £7,000 into a share ISA, so could not subscribe to a cash ISA at that time. In 2004 I put £3,000 into a cash ISA, so you may have been correct.

TJH

[mc2fool]

I think that Wikipedia is wrong. Initially you could only have 25% of a PEP in a collective investment fund, but you could be 100% invested in equities, which might have included Investment Trusts. I think that it was 1992-3 before you could be 100% in collective funds. That is certainly the year in which I first opened a PEP with a unit trust manager. I did so in the following 3 years, and also opened a Single Company PEP in the year after that (1996-7). You may recall that initially the maximum allowed in a Tax Year (1987-8) was £2,400, increased to £3,000 in 1988-9 and to £6,000 in 1989-90, where it remained. I am not certain when Single Company PEPs began, but you were allowed £3,000 per year in one of those, possibly from 1992-3.

I don't recall any of it 'cos I was living abroad for the whole of that period.

I've found the original legislation, The Personal Equity Plan Regulations 1986, coming into force on 1-Jan-1987. That confirms (section 6) what you say about a quarter in collectives, but also says £420, which would make the full amount £1680 ... and I can't make sense of section 7 on investment limits, which mentions £240 and then 10% so it may be £2400, but not explicitly so; clear as mud. Maybe I'll try again tomorrow.

In truth I'm not actually interested in the fine details, just in how much one could have put into equities (collective or otherwise) in PEPs/ISAs in each year, so I can then do an XIRR to see what rate of return one would have needed to get to a million today. The ISA figures are easy to find, the PEP ones less so....

[kempiejon]

Someone at the Fool might have done the leg work here https://www.fool.co.uk/investing-basics ... llowances/

In truth I'm not actually interested in the fine details, just in how much one could have put into equities (collective or otherwise) in PEPs/ISAs in each year, so I can then do an XIRR to see what rate of return one would have needed to get to a million today. The ISA figures are easy to find, the PEP ones less so....

[tjh290633]

Frankly surprised that anyone would be identified as an ISA millionaire on one platform. Given that most sensible (and I take it that if you’ve saved/made £1m you’re sensible) investors would spread risk, does that mean that most of these “millionaires” are multi-millionaires?

By my calculations the maximum anyone could have subscribed is now about £350,000. There may well be His and Hers accounts around, but given a performance like my PEPs/ISAs, about 9% since inception is easily possible, which takes you to about £1.5 million. The PEP gave me over 12% until it was merged in with the ISA in 1007-8.

TJH

[Lootman]

I'm not actually interested in the fine details, just in how much one could have put into equities (collective or otherwise) in PEPs/ISAs in each year, so I can then do an XIRR to see what rate of return one would have needed to get to a million today. The ISA figures are easy to find, the PEP ones less so....

That would be an interesting exercise, and would probably make my performance look pretty bad. But you would need to make a number of assumptions such as:

1) Equities or funds, given that there were different allowances for a few years.

2) Was there are a TESSA that could later be merged in?

3) Do you assume maxxing out single company PEPs?

4) There was one year where, IIRC, if you were over 50 years old you could make an extra interim contribution. That happened because, again from memory, the "year" changed from a calendar year to the tax year.

5) You would have to make an assumption on which date each contribution was made.

[mc2fool]

Someone at the Fool might have done the leg work here https://www.fool.co.uk/investing-basics ... allowances

Aha, that's great! Thanks! Interesting twist that the allowances for 1987 and 1988 applied to calendar years and thereafter changed to tax-years.

Now, nobody has yet confirmed (or otherwise) whether when there were general PEPs and single company PEPs if you could put both £6K in the former and £3K in the latter? (The implication seems to be yes, but then it's a bit strange that a total of £9Kpa into PEPs would be replaced with a max of just £7Kpa into S&S ISAs.)

[Lootman]

Someone at the Fool might have done the leg work here https://www.fool.co.uk/investing-basics ... allowances

Aha, that's great! Thanks! Interesting twist that the allowances for 1987 and 1988 applied to calendar years and thereafter changed to tax-years.

Now, nobody has yet confirmed (or otherwise) whether when there were general PEPs and single company PEPs if you could put both £6K in the former and £3K in the latter? (The implication seems to be yes, but then it's a bit strange that a total of £9Kpa into PEPs would be replaced with a max of just £7Kpa into S&S ISAs.)

I thought I had stated earlier that I recall that indeed you could contribute to both in the same year. The actual contribution amounts may have varied by year, but the principle of being able to contribute to both is something I clearly recall as having done. The paperwork is probably in a box in my attic but may take me some time to produce!

[tjh290633]

Someone at the Fool might have done the leg work here https://www.fool.co.uk/investing-basics ... allowances

Aha, that's great! Thanks! Interesting twist that the allowances for 1987 and 1988 applied to calendar years and thereafter changed to tax-years.

Now, nobody has yet confirmed (or otherwise) whether when there were general PEPs and single company PEPs if you could put both £6K in the former and £3K in the latter? (The implication seems to be yes, but then it's a bit strange that a total of £9Kpa into PEPs would be replaced with a max of just £7Kpa into S&S ISAs.)

See my post viewtopic.php?p=389759#p389759 with my estimate of how much could have been subscribed so far.

You definitely could invest £3k into an SC PEP and £6k into a normal Share PEP.

TJH

[mc2fool]

Ok, here it is. Investing the max. in General PEPs and ISAs on the earliest date possible each time:

the total invested is £310,760 and the XIRR to get to a million today is 7.42%pa.
if you qualified for the over-50s extra in 2009/10, applied from 1st Oct, the total is £313,760 and the XIRR to a million is 7.38%pa.
and if you also maxed single company PEPs it is £337,760 and 6.61%pa if over 50 in 2009/10, and £334,760 and 6.64%pa if not.

Now, for comparators ... well, the FTSE 100 capital only for the same period managed just an annualised 4.11%pa but with probably an extra 3-4% dividend yield it looks like one could have got to a million or so with the same contributions all going into just a FTSE 100 tracker (although such a beast probably didn't exist in the earlier years). Of course, if you'd put it all in Berkshire Hathaway instead ....

Data below if anyone wants to DIY for different starting dates or other variants.

Date         Amount        Runniing Total                                          
1-Jan-1987        £2,400          £2,400                                           
1-Jan-1988        £3,000          £5,400                                           
6-Apr-1989        £4,800         £10,200                                           
6-Apr-1990        £6,000         £16,200                                           
6-Apr-1991        £6,000         £22,200   Add £3k for SC PEPs                     
6-Apr-1992        £6,000         £28,200   ditto                                   
6-Apr-1993        £6,000         £34,200   ditto                                   
6-Apr-1994        £6,000         £40,200   ditto                                   
6-Apr-1995        £6,000         £46,200   ditto                                   
6-Apr-1996        £6,000         £52,200   ditto                                   
6-Apr-1997        £6,000         £58,200   ditto                                   
6-Apr-1998        £6,000         £64,200   ditto                                   
6-Apr-1999        £7,000         £71,200                                           
6-Apr-2000        £7,000         £78,200                                           
6-Apr-2001        £7,000         £85,200                                           
6-Apr-2002        £7,000         £92,200                                           
6-Apr-2003        £7,000         £99,200                                           
6-Apr-2004        £7,000        £106,200                                           
6-Apr-2005        £7,000        £113,200                                           
6-Apr-2006        £7,000        £120,200                                           
6-Apr-2007        £7,000        £127,200                                           
6-Apr-2008        £7,200        £134,400                                           
6-Apr-2009        £7,200        £141,600                                           
1-Oct-2009        £3,000        £144,600   Extra allowance for over 50s            
6-Apr-2010       £10,200        £154,800                                           
6-Apr-2011       £10,680        £165,480                                           
6-Apr-2012       £11,280        £176,760                                           
6-Apr-2013       £11,520        £188,280                                           
6-Apr-2014       £11,880        £200,160                                           
1-Jul-2014        £3,120        £203,280   Allowance raised to £15,000 for the year
6-Apr-2015       £15,240        £218,520                                           
6-Apr-2016       £15,240        £233,760                                           
6-Apr-2017       £20,000        £253,760                                           
6-Apr-2018       £20,000        £273,760                                           
6-Apr-2019       £20,000        £293,760                                           
6-Apr-2020       £20,000        £313,760                                           
24-Feb-2021  -£1,000,000                   For XIRR

[mc2fool]

I thought I had stated earlier ...

See my post ...

Both spotted but you both seemed to have some uncertainties, apologies if I misread that ... of course I am now depending on the TMF data being correct.

[scrumpyjack]

Looking back at my ISA, I never bothered with SC PEPs and missed the odd year subscribing.

I made the big mistake of investing in the usual serial value destroyers like Barclays, Aviva, Tesco, HSBC etc etc. Also I rather neglected thinking about what was in it as I was too busy with other things. But there are always huge opportunities when the market crashes to buy solid businesses at ridiculous prices because the market often becomes completely irrational at such times. You just have to keep calm and evaluate things logically and as a chartered accountant I could look at these businesses and make a rational decision as to whether they would survive and prosper.

So my ISA recovered extremely well as I managed to be brave and buy the right shares at the right time. Barratt at 46p was pretty good, as was Persimmon, Prudential, RIO, etc. I also decided to put more into IT’s so I didn’t have to monitor things too much. One was Scottish Mortgage something.

All the dross is still in there as either I fall for the illusion that someday these oldies will recover or I hate to admit what a bad investment they were.

[hiriskpaul]

Ok, here it is. Investing the max. in General PEPs and ISAs on the earliest date possible each time:

the total invested is £310,760 and the XIRR to get to a million today is 7.42%pa.
if you qualified for the over-50s extra in 2009/10, applied from 1st Oct, the total is £313,760 and the XIRR to a million is 7.38%pa.
and if you also maxed single company PEPs it is £337,760 and 6.61%pa if over 50 in 2009/10, and £334,760 and 6.64%pa if not.

Now, for comparators ... well, the FTSE 100 capital only for the same period managed just an annualised 4.11%pa but with probably an extra 3-4% dividend yield it looks like one could have got to a million or so with the same contributions all going into just a FTSE 100 tracker (although such a beast probably didn't exist in the earlier years). Of course, if you'd put it all in Berkshire Hathaway instead ....

Data below if anyone wants to DIY for different starting dates or other variants.

Date         Amount        Runniing Total                                          
1-Jan-1987        £2,400          £2,400                                           
1-Jan-1988        £3,000          £5,400                                           
6-Apr-1989        £4,800         £10,200                                           
6-Apr-1990        £6,000         £16,200                                           
6-Apr-1991        £6,000         £22,200   Add £3k for SC PEPs                     
6-Apr-1992        £6,000         £28,200   ditto                                   
6-Apr-1993        £6,000         £34,200   ditto                                   
6-Apr-1994        £6,000         £40,200   ditto                                   
6-Apr-1995        £6,000         £46,200   ditto                                   
6-Apr-1996        £6,000         £52,200   ditto                                   
6-Apr-1997        £6,000         £58,200   ditto                                   
6-Apr-1998        £6,000         £64,200   ditto                                   
6-Apr-1999        £7,000         £71,200                                           
6-Apr-2000        £7,000         £78,200                                           
6-Apr-2001        £7,000         £85,200                                           
6-Apr-2002        £7,000         £92,200                                           
6-Apr-2003        £7,000         £99,200                                           
6-Apr-2004        £7,000        £106,200                                           
6-Apr-2005        £7,000        £113,200                                           
6-Apr-2006        £7,000        £120,200                                           
6-Apr-2007        £7,000        £127,200                                           
6-Apr-2008        £7,200        £134,400                                           
6-Apr-2009        £7,200        £141,600                                           
1-Oct-2009        £3,000        £144,600   Extra allowance for over 50s            
6-Apr-2010       £10,200        £154,800                                           
6-Apr-2011       £10,680        £165,480                                           
6-Apr-2012       £11,280        £176,760                                           
6-Apr-2013       £11,520        £188,280                                           
6-Apr-2014       £11,880        £200,160                                           
1-Jul-2014        £3,120        £203,280   Allowance raised to £15,000 for the year
6-Apr-2015       £15,240        £218,520                                           
6-Apr-2016       £15,240        £233,760                                           
6-Apr-2017       £20,000        £253,760                                           
6-Apr-2018       £20,000        £273,760                                           
6-Apr-2019       £20,000        £293,760                                           
6-Apr-2020       £20,000        £313,760                                           
24-Feb-2021  -£1,000,000                   For XIRR

Interesting table thanks. I don't have figures for the FTSE, but here is what the returns would have been had an MSCI World tracker fund been available, allowed and chosen as the investment vehicle (all divis reinvested):

Date       Amount   PV       Runniing Total
01-Jan-87   £2,400  £41,721         £41,721
01-Jan-88   £3,000  £56,695         £98,416
06-Apr-89   £4,800  £64,517        £162,933
06-Apr-90   £6,000  £79,815        £242,748
06-Apr-91   £6,000  £79,548        £322,296
06-Apr-92   £6,000  £79,314        £401,610
06-Apr-93   £6,000  £60,996        £462,606
06-Apr-94   £6,000  £52,738        £515,344
06-Apr-95   £6,000  £52,669        £568,013
06-Apr-96   £6,000  £40,931        £608,944
06-Apr-97   £6,000  £40,082        £649,026
06-Apr-98   £6,000  £30,857        £679,883
06-Apr-99   £7,000  £30,699        £710,582
06-Apr-00   £7,000  £24,817        £735,399
06-Apr-01   £7,000  £29,435        £764,834
06-Apr-02   £7,000  £30,675        £795,509
06-Apr-03   £7,000  £44,711        £840,220
06-Apr-04   £7,000  £35,966        £876,186
06-Apr-05   £7,000  £33,295        £909,481
06-Apr-06   £7,000  £25,768        £935,249
06-Apr-07   £7,000  £25,118        £960,367
06-Apr-08   £7,200  £26,924        £987,291
06-Apr-09   £7,200  £33,589      £1,020,880
01-Oct-09   £3,000  £10,973      £1,031,853
06-Apr-10  £10,200  £32,865      £1,064,718
06-Apr-11  £10,680  £31,888      £1,096,606
06-Apr-12  £11,280  £33,192      £1,129,798
06-Apr-13  £11,520  £28,629      £1,158,427
06-Apr-14  £11,880  £27,076      £1,185,503
01-Jul-14   £3,120   £6,942      £1,192,445
06-Apr-15  £15,240  £29,012      £1,221,457
06-Apr-16  £15,240  £28,927      £1,250,384
06-Apr-17  £20,000  £28,611      £1,278,995
06-Apr-18  £20,000  £28,106      £1,307,101
06-Apr-19  £20,000  £24,957      £1,332,058
06-Apr-20  £20,000  £26,350      £1,358,408

These are figures up to the end of January 2021. All before charges of course and charges were much higher in the early days than they are now. Nonetheless I think it is interesting to see how important the early years were. In the first 10 years, the contribution was only £52,200 (17% of total), but the contribution to today's pot was £609k (45% of the total).

There are far more people around who could have and would have put the full amount into PEPs and ISAs than there are reported ISA millionaires, so what happened? As others have said, many will be missing simply because they hold ISAs across multiple brokers. One other thing that might have dragged total returns is some investors would have chosen to holding bonds and bond funds in ISAs. Interest income from bonds was taxed more heavily than dividend income, so it is reasonable to assume some of the wealthy stuffed their ISAs with bond funds for the higher income tax savings, but at the expense of long term total return within the ISA. I am sure another issue is that of inheritance tax for which £1m+ ISAs are sitting ducks. Some of the accumulated wealth will have been redirected down IHT mitigation routes.

ps, the £1,358,408 represents an internal rate of return (XIRR) of 9.0%. The CAGR of the index was only 8.76%, so the sequence of returns was actually quite favourable for ISA investors who maxed out at the earliest opportunity.

[hiriskpaul]

The paperwork is long gone now, but I remember having a single company PEP containing BT privatisation shares. These were partly paid, which was a pain as when subsequent installments became due I had to sell shares in order to meet the payments. It was not possible to top-up single company PEPs. It was good to see the back of that silly idea.

[dealtn]

There are far more people around who could have and would have put the full amount into PEPs and ISAs than there are reported ISA millionaires, so what happened?

Some wouldn't have remained fully invested.

I have contributed (almost) the full amount, but sold a significant portion to assist with buying a property. The property has gone up in value too, but the results of such won't show anywhere within the ISA.

[hiriskpaul]

There are far more people around who could have and would have put the full amount into PEPs and ISAs than there are reported ISA millionaires, so what happened?

Some wouldn't have remained fully invested.

I have contributed (almost) the full amount, but sold a significant portion to assist with buying a property. The property has gone up in value too, but the results of such won't show anywhere within the ISA.

That's a good point. Not all investments can be held in ISAs. Not just property, withdrawals may have been made for a number of business purposes.

[gryffron]

So the "secret" is:- Invest a lot of money in solid companies for the long term. Who could have guessed?

[Lootman]

There are far more people around who could have and would have put the full amount into PEPs and ISAs than there are reported ISA millionaires, so what happened?

Some wouldn't have remained fully invested.

I have contributed (almost) the full amount, but sold a significant portion to assist with buying a property. The property has gone up in value too, but the results of such won't show anywhere within the ISA.

That's a good point. Not all investments can be held in ISAs. Not just property, withdrawals may have been made for a number of business purposes.

Yes, one of the values of an ISA is that you can liquidate a fairly large sum without any tax implications. So if an opportunity comes along you can raise cash in just a few days.

This happened to me in 1998 when I had the opportunity to buy a property that was not going to be offered publicly. The only snag was that it was not possible to get a mortgage on it, so it had to be a cash purchase. I sold off my SC-PEPs which, from the table above would have been a £24,000 contribution, although its actual value was more than that upon sale. I eventually sold that property 12 years later for four times what I paid for it, which was a better return than the SC-PEPs would have given me, given that they were in usual suspect UK largecaps.

Your example of how a global tracker would have done is instructive, not least because my attempts at active management have given returns well below that. As far as I can the reasons were threefold. A large position in a "wealth preserver" IT that did its job but did not juice the returns much. An over-allocation to the UK during a period when the FTSE-100 barely grew. And a tendency in the past to put higher dividend paying shares in the ISA, which crimped growth. At the same time my most successful positions, e.g. in the Scottish Mortgage, Lindsell Train and Biotech Growth ITs, were all in my taxable account.

Even so, a half million pound growth in assets with no tax is not to be sneezed at.

[Midsmartin]

My secret to a large ISA was to buy shares in JD sports in 2011, and then through sheer indecisiveness and laziness, I failed to sell most of them them at lots of points where I thought maybe I should. Idleness doesn't always work, but it's a common factor in my big winners (in amongst the big losers of course. We all have those).

[GoSeigen]

There are far more people around who could have and would have put the full amount into PEPs and ISAs than there are reported ISA millionaires, so what happened? As others have said, many will be missing simply because they hold ISAs across multiple brokers.

My wife and I started our ISAs in 2001. In 2006 we retired and have been living off our investments since that date. We were net contributors to the ISAs until 2012, thereafter we started to draw upon them, so about 11 years of maxed-out contributions. If you added back the cash withdrawn our total would be well north of £1m but spending, purchase of a property and allocation of funds to CTFs and SIPPs has limited the growth of the ISAs.

GS