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ISA Millionaires
Harry Trout
Posted: 03 March 2018 08:51:54(UTC)
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The Citywire article in the week about ISA millionaires got my interest. Hargreaves Lansdown are saying that they now have 168 investors with £1 million in their ISA, an increase from three in 2012.

Citywire Article About ISA Millionaires

I crunched the numbers to see what annual rate of return would be needed on the assumption that you started with the old personal equity plans (PEPs) from 1987 and then rolled this pot into an ISA from 1999 / 00 when ISAs started. I assumed monthly investing and agree with Citywire's numbers that this would be have meant investing £250k from the begiining.

I make it that the annual return required (after HL charges) would be 9.3% per annum.

I am purely guessing but I imagine that not many of the 168 millionaires would have taken advantage of every penny of the PEPs and ISA allowances and so there must be some impressive performances in there.

I also found it interesting the top 10 investments they were in. Anyway, I got some encouragement from the number crunching and thought I would share.

[ For the record, I am a long way off the £1 million mark !!!! ]
13 users thanked Harry Trout for this post.
what me, worry? on 03/03/2018(UTC), Redundant (Old Timer?) on 03/03/2018(UTC), Bruce J. on 03/03/2018(UTC), neville dwards on 03/03/2018(UTC), Sara G on 03/03/2018(UTC), C Blockley on 03/03/2018(UTC), Tony Peterson on 03/03/2018(UTC), gillyann on 03/03/2018(UTC), c brown on 06/03/2018(UTC), mcminvest on 06/03/2018(UTC), Alan M on 07/03/2018(UTC), Andrew Smith 259 on 11/03/2018(UTC), blackandgold on 11/03/2018(UTC)
Tony Peterson
Posted: 03 March 2018 09:23:07(UTC)
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An actively maneged ISA comprised of high yielding blue chips (we hold six of the ten most popular in our own ISAs) has to be the easiest way to grow one's first million.

Don't forget it is now possible for a bereaved husband or wife to transfer their spouses ISA into their own. That could be part of the reason for the jump in numbers. I do not find 9.3% a remarkable return on actively managed blue chip ISAs.

7 users thanked Tony Peterson for this post.
Harry Trout on 03/03/2018(UTC), what me, worry? on 03/03/2018(UTC), Redundant (Old Timer?) on 03/03/2018(UTC), neville dwards on 03/03/2018(UTC), Sara G on 03/03/2018(UTC), c brown on 06/03/2018(UTC), mcminvest on 06/03/2018(UTC)
Harry Trout
Posted: 03 March 2018 10:37:34(UTC)
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Thanks Tony, interesting

If you are correct that some of the ISA millionaires have got there because they benefitted from inheritances then I guess their returns would be less than 9.3%. It’s conjecture really as we don’t know when they started their pots.

Important context for me is that Hargreaves Lansdown have over a million clients, most of which will have an ISA presumably.

I have a long-term portfolio target of 10% p.a. after costs. All in all, I think my target is probably going to be quite stretching over time, although I was thinking that before I crunched the numbers in Citywire’s piece. I’m still happy with my target as I want to be stretched, I like a challenge.

Your posts are influential (as are many on here) and motivate me to continue to develop my own portfolio of shares. I like the idea of saving trust manager costs and enjoy looking at individual companies and patiently awaiting bargains to top up.

The last two added were Diageo and Unilever with top ups since. These additions make up a quintet which represents less than 15% of my overall pot. It is a work in progress but an enjoyable one at that ……….

Harry
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Tony Peterson on 03/03/2018(UTC), mcminvest on 06/03/2018(UTC)
Tony Peterson
Posted: 03 March 2018 12:01:59(UTC)
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Thank you, Harry, for your kind words above, and also for starting a thread which, in March draws attention to what I consider to be investing imperatives this month.

My advice to any UK taxpaying saver this month is to make sure that you have - if you can possibly raise the amount, made your full £20k contribution to your 2017-18 ISA. And put it in high yielding blue chips with global outreach like GSK and Vodafone .

And, presuming the opportunity remains, get your 2018-19 allowance maxed out as soon as the new tax year begins.

Our biggest investment mistake was in 2009 when we cleared all our cash from gilt, index linked gilts, premium bonds, deposit accounts and several cash ISAs and did not transfer the proceeds into our new self select S&S ISA as had just become possible. At the time it seemed to make little difference, but that was before the 10% tax credit on dividends was scrapped. So our 7 digit holding is equities outside ISA and claiming loads of tax courtesy Philip H.

And the only way in which one of us could become an ISA millionaire in the near future is through circumstances neither of us wish to dwell on at great length but should be obvious from my post above.
3 users thanked Tony Peterson for this post.
jeffian on 03/03/2018(UTC), Harry Trout on 03/03/2018(UTC), Alan M on 07/03/2018(UTC)
jeffian
Posted: 03 March 2018 14:10:08(UTC)
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"My advice to any UK taxpaying saver this month is to make sure that you have - if you can possibly raise the amount, made your full £20k contribution to your 2017-18 ISA...........And, presuming the opportunity remains, get your 2018-19 allowance maxed out as soon as the new tax year begins."

Accepting the caveat that not everyone has the means to do it, I am always surprised at how much focus is placed on making your ISA subscription 'prior to 5 April' rather than 'as soon as possible after 6 April'! That's a year's tax shelter lost. Like Tony, a casual approach in the early days of PEP's/ISA's means that I too have substantial investments outside ISA's so I use HL's 'Bed & ISA' facility at the earliest opportunity each new financial year.

I'm not as squeamish as Tony and have recently been doing a bit of preparation for the inevitable. My wife accuses me of 'never telling her where anything is' - which isn't entirely true, more that she glazes over when I do! - so I have prepared a 'To do on my death' list which is attached to my will. Reminding her of the transferable ISA allowance is quite high on it.
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C Blockley on 03/03/2018(UTC), Tony Peterson on 03/03/2018(UTC), Lemanie on 03/03/2018(UTC), Alan M on 07/03/2018(UTC)
Tony Peterson
Posted: 03 March 2018 15:57:41(UTC)
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jeffian

I only intended the "get in now" message for those who have not used up their current ISA allowance, obviously, as I am sure you realise..

My hunch is that the optimal use of the allowance in any tax year is to get in, if humanly possible, your full contribution on 6 April, and invest in large enough chunks of stock for each dividend to be of investable size. Leaving contributions to the end of the tax year misses out on those additional investments which have an oversize role in growing your ISA as fast as possible.



2 users thanked Tony Peterson for this post.
Lemanie on 03/03/2018(UTC), Keith Cobby on 03/03/2018(UTC)
Joe 90
Posted: 03 March 2018 17:36:53(UTC)
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Surely by using ones £20k allowance in one lump after 6 April goes against the well regarded principle of dripping the investment over time to smooth peaks and troughs.
Balvenie
Posted: 03 March 2018 17:40:21(UTC)
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Tony Peterson;58143 wrote:
jeffian

I only intended the "get in now" message for those who have not used up their current ISA allowance, obviously, as I am sure you realise..

My hunch is that the optimal use of the allowance in any tax year is to get in, if humanly possible, your full contribution on 6 April, and invest in large enough chunks of stock for each dividend to be of investable size. Leaving contributions to the end of the tax year misses out on those additional investments which have an oversize role in growing your ISA as fast as possible.



Tony, I don't have any ISAs, but instead try to put more in my pension pot. Before April 6, I'll have some spare cash £10k, that I can put either in ISA or SIPP. My thinking that as a 40% tax payer I should put it in my SIPP ? Is my thinking correct ?
dyfed
Posted: 03 March 2018 17:57:24(UTC)
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Balvenie;58151 wrote:
Tony Peterson;58143 wrote:
jeffian




Tony, I don't have any ISAs, but instead try to put more in my pension pot. Before April 6, I'll have some spare cash £10k, that I can put either in ISA or SIPP. My thinking that as a 40% tax payer I should put it in my SIPP ? Is my thinking correct ?


Sorry to muscle in, but yes, I'd certainly put the cash in my SIPP: 20% immediate uplift in yr SIPP and another 20% back on your tax bill. Only query is if you are going to exceed a lifetime allowance. Of course, you have to pay tax when you crystallise your pension which you don't with an ISA, but you get such a head start with a SIPP I've found it a no-brainer. I always put as much as I possibly could into my SIPP - until lifetime allowances and reduced tax-back barriers arrived - and have never regretted it.
King Lodos
Posted: 03 March 2018 18:43:36(UTC)
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Joe 90;58150 wrote:
Surely by using ones £20k allowance in one lump after 6 April goes against the well regarded principle of dripping the investment over time to smooth peaks and troughs.


I think drip-feeding's a useful principle, but over years and decades – not months.

People talk about drip-feeding a lump sum into a investments over a year – but the chances you'll hit a sudden bear market are really very low .. There's just as much chance you hit a bear market just as you stop drip-feeding – leaving you half exposed to the upside, and fully exposed to the downside


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Balvenie on 03/03/2018(UTC), mcminvest on 06/03/2018(UTC), Alan M on 07/03/2018(UTC)
markus
Posted: 03 March 2018 18:45:59(UTC)
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Joe 90;58150 wrote:
Surely by using ones £20k allowance in one lump after 6 April goes against the well regarded principle of dripping the investment over time to smooth peaks and troughs.


if you've sold investments to fund the £20k then re-investing lump sump doesn't impact your market exposure.

if it's coming from cash then rate of investment is down to your risk profile - cautious then yes you might want to drip it in.

Although various studies have shown it's better to get on with it & lump sum invest - a discussion:
http://monevator.com/lum...ng-versus-drip-feeding/

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mcminvest on 06/03/2018(UTC), Alan M on 07/03/2018(UTC)
Tony Peterson
Posted: 03 March 2018 18:53:02(UTC)
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Joe 90

I don't know (or care) who well-regards the principle you quote.

I do not try to avoid peaks and troughs. (They occur at different times with different companies anyway.) I like peaks and troughs in all our holdings. Trim the peaks and replace in the troughs. That is how it is easy for an ISA based on FTSE 100 shares to grow faster even than the highest yielding stock in the index.

That is why we plan to invest our full allowance on April 6th but have no present idea in what.

Balvernie

I don't give a lot of thought to SIPPs as I am ineligble. However, I can see (v another thread) that US stocks are better invested in SIPPS for tax reasons. Dyfed's views are worth considering - she has been exploring these recently.

What I would really like to know is how many of HL's ISA millionaires are invested (a) solely in equities (b) solely in funds (c) a mix of the two. Anybody got any clout with HL who might persuade them to answer that one? After all, it could support, or refute my contention that the majority would do better by cutting out fund-managing middlemen. I know I have.
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dyfed on 03/03/2018(UTC), Balvenie on 03/03/2018(UTC), Alan M on 07/03/2018(UTC)
jeffian
Posted: 03 March 2018 18:53:03(UTC)
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Well I do drip-feed it in - maximum amount on the button at the beginning of every financial year!

(However, as markus points out, using the 'Bed & ISA' facility makes no difference to market exposure).
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Tony Peterson on 03/03/2018(UTC)
kWIKSAVE
Posted: 03 March 2018 19:27:26(UTC)
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As mentioned before my funds have done much better overall than direct equities.

Putting aside my sloth in trimming gains to plough back into paper loss showing shares

with a tracker there is often no initial charge and minimal annual fee

By holding solid funds for years without churning it is a moot point on charges alone

if Tony P's strategy is that much cheaper.

All I know is I would have been better off, admittedly on past results, by having fewer shares in different companies as these take more monitoring and nerve
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Alan M on 07/03/2018(UTC)
Tony Peterson
Posted: 03 March 2018 20:22:44(UTC)
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kWIKSAVE, my friend.

I seem to recall some time back you mentioned dumping LBG as it drifted close to 50p. A strategy of dumping oversold shares in dips like that might give some clue as to why your funds have outperformed your direct equities.

I still think LBG is essentially a buy, but my most recent trades have been to slice some profits at over 71 from shares bought in our ISAs when you were selling yours.

As (still) a lower yielder we are taking LBG profits when over 70p from ISAs and buying LBG back in its dips outside of ISA.

That is one change made to my modus operandi since the dividend tax was introduced.. High yielders go in ISA, lower yielders outside. A little additional complication in capital gains taking month - aka March. All good clean fun.

kWIKSAVE
Posted: 03 March 2018 21:49:19(UTC)
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Dear Tony

I have never held Lloyds Banking Group and am still not attracted !

As to your principle of holding divi shares in ISA, that may not be so clear cut for me as ISA tax-free gains may outweigh ISA tax-free income in some cases.

If I can keep within BR band it's 7.5% tax on income (over £2,000) but 10% tax on gains (over £11,500 for 18/19)

Best regards

Kwikkers
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Tony Peterson on 03/03/2018(UTC)
Tony Peterson
Posted: 03 March 2018 22:12:05(UTC)
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Kwikkers

A senior moment with my memory, obviously. Sorry for that.

I take your point about gains in ISA, but all my recent experience points to there being better gains from the higher yielders in or out of ISA. They tend to be a bit more volatile. RIO is the classic example.

The boring low yielding stuff outside may grow stolidly. Or not, as the case may be. Anyway Monday should be interesting again in a month which is always the most interesting for us. Might even be a chance to pick up out of ISA the RIO I sold in ISA at over 41 in January at around 36.

Cheers..
Stephen B.
Posted: 04 March 2018 10:13:04(UTC)
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Tony Peterson;58158 wrote:
What I would really like to know is how many of HL's ISA millionaires are invested (a) solely in equities (b) solely in funds (c) a mix of the two. Anybody got any clout with HL who might persuade them to answer that one? After all, it could support, or refute my contention that the majority would do better by cutting out fund-managing middlemen. I know I have.


I'm not yet an ISA millionaire, but I have been making more or less maximum contributions for about 18 years. I have about 1/3 of my portfolio in direct shares, mainly large blue chips although some smaller ones. The rest is in funds, mainly investment trusts, for exposure to overseas markets, small companies, private equity and bonds where it isn't easy for me to do it myself.

I track the portfolio monthly, separately for shares, ITs and UTs. Over the 18 years to the end of 2017 my annualised returns are 3.3%, 4.4% and 6.0% respectively. Those are capital returns and the shares will have a somewhat higher yield so in the end about equal, but somewhat uncorrelated so the volatility is lower than a pure share portfolio would be. Also the ITs are generally higher risk - see below.

The UT performance may seem a little curious. That's a fairly small part of the portfolio and mainly used for bond funds, and to some extent was in accumulation units so includes part of the yield. Bonds also held up much better than shares in the financial crisis and that has some impact even on such a long timescale - in 2008 the three components were -34%, -42% and +4%!

The long run performance was obviously impacted by the tech boom and bust, the 2008-9 crisis and the euro-zone crisis, so I'm also tracking the performance sine the end of 2012 to see what's happened in the recovery phase (as it happens I also retired in 2012). Over those five years the annualised numbers are 5.4%, 11.4% and 9.4% so funds have done way better. As they say, past performance may not predict the future, but it does show that in relatively good markets higher-risk funds may do a lot better than large blue chips.
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Harry Trout on 04/03/2018(UTC), Alan M on 07/03/2018(UTC)
Stephen B.
Posted: 04 March 2018 10:34:07(UTC)
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By the way, fund managers would certainly prefer people to invest at the start of the tax year and HL at least regularly try to persuade people to do it, but I think it's a basic fact of life that most people leave it to the end of the year so the publicity for "ISA season" has to follow that reality.
JohnW
Posted: 04 March 2018 12:17:17(UTC)
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Actually, whether the investment is made at the beginning of the season or end is only significant the first year. From then on the investments are only 2 days apart! So I don't think it matters a damn to HL or any other platform, except that the sooner they get you the less the chance of any other platform getting you.
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Amit Kapoor on 12/03/2018(UTC)
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