Making millionaires with patient investing
David Prosser on how investment trusts are making their investors rich.
Full credit to Plum, the savings and investment app, which has been trying to drum up a bit of publicity for itself with some clever analysis. Its new study of HM Revenue & Customs data reaches an arresting conclusion: the number of people who have become millionaires courtesy of individual savings accounts (ISAs) is now larger than the number of millionaires created by the National Lottery.
It’s an eye-catching headline that has got quite a bit of coverage. By the end of the 2022-23 tax year, there were 5,070 ISA millionaires in the UK, but Plum reckons investment returns since then will have swelled their ranks to more than 10,000.
The data speaks for itself: the long-term track record of the investment trust sector remains compelling, as many of the current generation of ISA millionaires have discovered to their great benefit.
David Prosser
For financial advisers, the study offers a powerful message to take to clients in the run up to the end of the tax year on 5 April – and beyond. It’s a tangible reminder of the power of sustained savings over the long term, as well as the importance of optimising tax efficiency.
All the investment platforms make the same point when analysing the habits of the investors in their client bases with the largest ISA portfolios. The vast majority haven’t built those portfolios through genius-level stock picking; rather, they have been investing consistently for many years, making as much use of their annual ISA allowances as possible, often for all or most of the 27 years that the tax-free plans have now been available.
Advisers understand well what tax-free compound returns can deliver over an extended period. And their ability to help clients make smart decisions about long-term portfolio construction and asset allocation adds additional value.
In that context, data published last month by interactive investor also made interesting reading. It too has been studying the rise of the ISA millionaire, and one observation about its clients in that category is striking. On average, they hold 33% of their ISA portfolios in investment trust shares, interactive investor revealed; across its client base as a whole, the figure was only 15%.
That makes sense. The long-term performance of investment trusts – certainly over the 27-year history of ISAs – has outstripped other funds. There are multiple explanations for that outperformance, from investment trusts’ use of gearing to their superior governance structure. And while there can be no guarantee it will be repeated, most of the advantages of investment trusts remain in place.
It’s fair to say that investment trusts haven’t been the most fashionable fund structure in the financial adviser community over the past couple of years. Concerns about trusts trading on wide discounts to the value of assets, as well as the liquidity of some smaller trusts, are part of that story. But the data speaks for itself: the long-term track record of the investment trust sector remains compelling, as many of the current generation of ISA millionaires have discovered to their great benefit.
The Association of Investment Companies, naturally, has also done some work in this area. It looked at what would have happened to investors if they had used their full annual ISA allowance to put money into the same investment trust each year between 1999 and 2005.
A remarkable 68 investment trusts would have turned such contributions – totalling £346,560 over the whole period – into a pot worth more than £1m. The top two trusts, Allianz Technology and Polar Capital Technology, would have taken investors above £3m, with a further six funds creating ISA millionaires with portfolios worth more than £2m.
All of which should whet clients’ appetites in these final few weeks of the 2025-26 financial year. Amid all the ups and downs of the daily news cycle, from hype around artificial intelligence to the crisis in the Middle East, the case for long-term, tax efficient savings and investment is as convincing as ever.
