18th June 2014
Investing the full New Isa allowance of £15,000 each should mean investors can reach a £1,000,000 in their 25th year of investing. Fund platform Fidelity made the calculations based on this year’s budget changes, full use of the allowance and assuming 5% annual growth and an inflationary increase of 2.5% each year on ISA allowance.
Fidelity Personal Investing says that using the previous limit investors might not become millionaires before their 29th year of investing.
The NISA created in this year’s Budget changes allows investors to combine cash and stocks and shares savings, giving them freedom to hold a far broader range of investments within this tax efficient wrapper. The firm says that just three weeks to go until NISAs arrive, now is a good time for savers to consider if their savings are working hard enough to meet their goals.
Fidelity says that while there are few ‘quick fixes’ to becoming a NISA millionaire, it is important to maximise your allowance and properly diversify your portfolio.
Maike Currie, of Fidelity Personal Investing, says: “Investing in cash is your least risky option. However it is often said that no one ever became a millionaire by leaving their money in a cash account, and with interest rates at historic lows this is more than true today than ever.
“While it is important to hold some cash as a ‘rainy day’ fund and some disposable cash to take advantage of new investment opportunities, the beauty of a stocks and shares ISA is that it allows you to invest in a wide range of investment vehicles such as bonds, equities and funds.
“The latter is a more risky option than a cash ISA as your money will be exposed to the vagaries of the stock market. However, the true value of a stocks and shares ISA will manifest itself over the long term. Over a long time horizon the ups and downs of the stock market can be smoothed out.”
Fidelity calculates that if a saver had invested £15,000 into the FTSE All Share index over a 10 year period*** they would now be left with £35,218.50. If, however, they had invested £15,000 into the average UK savings account** over the same period, they would be left with £16,582.65 a difference of £18,635.85.
**Morningstar’s UK Savings 2500 (G) MP002 tracks average UK cash savings accounts. Source: Fidelity Personal Investing, March 2014
*** (from 31 March 2004 to 28 February 2014)