7:00AM GMT 04 Feb 2012
CommentIgnore your tax-free Isa allowance at your peril – you could be missing out on a million-pound fortune. Savers who have religiously salted away their full annual Pep and Isa allowance over the past 25 years have amassed a tidy fortune; there are dozens of Isa millionaires across the country.
Brewin Dolphin, the private client investment manager, boasts nine Isa millionaires among its clients. Their investments have a combined value of £15.5m, with the highest having a combined Pep and Isa pot of £4.4m.
Charlotte Black of Brewin Dolphin said its Isa millionaires invested in individual shares, rather than funds – with many stocks at the smaller end of the FTSE scale.
Ms Black admitted that many of the shares that had made sizeable gains would have been off the average investor's radar – and too risky. But she added that everyone with spare cash should maximise their Isa allowance, which this tax year is £10,680.
"Isas and Peps [personal equity plans, Isas' predecessors] have been such a valuable savings medium over the past 25 years and we advise clients never to miss a chance to use them, either alone or as a tax-free zone within their portfolio. Our millionaires have each adopted a more risky investment strategy and it is exciting to see how that has paid off for some."
So just how easy is it to become an Isa millionaire?
It may sound a long shot but Killik & Co, the stockbroker, which has around 16 Isa millionaires among its clients, reckons that modest growth of 5pc a year and the small matter of a 25-year horizon will do the trick for a couple pooling their Isa allowances. "Assuming a 5pc rate of growth a year, this could be worth £1.074m, or £1.686m assuming 8pc growth," said a spokesman.
John Cotter of Barclays Stockbrokers (which also has 16 millionaires) said: "Some have achieved Isa millionaire status by having a lot of eggs in just a few baskets – a risky strategy. Some have backed their judgment in one or two companies and their strategies have paid off; again, risky. They have also recognised the importance of reinvestment of the dividends."
The savvy investors
Not surprisingly, few Isa millionaires want to put their head above the parapet and, like many National Lottery winners, they shun publicity. But fortunately there are a couple of savvy investors who are happy to share their Isa joy.
One such couple, John Housden and his wife, Judith, from Kent, have accrued a combined pot of £1.3m having invested around £190,000 each since the first year of Peps in 1988. It pays them a handsome income of £57,000 a year. Mr Housden kicked off his portfolio with £3,000 worth of Midland Bank shares. He has added to his holding in the company (which was taken over by HSBC in 1992) since and his stake is worth around £40,000 today.
It has not all been plain sailing for the Housdens. Among the winners there have been some losers – notably, he says, Woolworths, Yell and Jarvis. But he rates his decision to buy Rolls-Royce shares as, perhaps, his smartest move. Mr Housden, who does his own research, bought £3,500 of the shares when they were worth 147p – they are now priced at 738p.
A top tip for all would-be Isa millionaires is to be patient, even when you are gripped by fear as share prices plummet amid rumours of stock market Armageddon.
"As a rule I don't worry about fluctuations in capital value as I tend to think of the Isas as a source of retirement income," said Mr Housden. "Just as well really, because the value now (£1.34m) is much the same as in June 2007, although in March 2009 it had fallen to just £760,000."
Ivan McKay, a sheep farmer and Daily Telegraph reader from Northern Ireland, has amassed a Pep and Isa pot worth £1.6m. He uses two brokers, Barclays Stockbrokers and Walker Crips Weddle Beck. Mr McKay said he had never forgotten the advice his local accountant gave him when he was about to invest in his first Pep. "He said to me, 'be your own man'.
"If I read a paper with a star-studded share panel, I won't follow their tip if I think the price is high," said Mr McKay. "I have often been proved right."
Mr McKay said he had had two "outstanding" buys and his top secret to investors was "to take profits" along the way.
For example, he bought Babcock International when its share price was just 53p but has taken profits as it continued its climb (it is now priced at 740p). He also bought Scottish & Southern Energy in 1989 at 240p (the shares now stand at £12.35) and this year it is paying a dividend of 80p – that's a return of 33pc in itself, he says proudly.
Mr McKay added: "I'm a livestock farmer so I work long 16-hour days when the weather is dry, but can catch up on my reading about shares when it's been raining – and it has been raining a lot recently."
His most recent purchase is XP Power, the power components company, which he bought at 925p, having watched its price slide from a high of £19 since the start of the year. The price has since ticked up to 983p.
"My school never put me forward for exams so I went back to the plough when I left. But I always believed I was as clever as those who went on to university," Mr McKay said.
Another Isa millionaire is a 71-year-old reader from the Midlands who wished to remain anonymous. The former stockbroker, who uses Redmayne Bentley, said he followed the cliched mantra of "run with your profits and cut your losses". He is also not afraid to go "liquid" if he feels the market is a little choppy. He has done this only twice, before the dotcom bust of the late Nineties and just before the credit crunch got into full swing in 2008.
"You should only ever sell a share when it is overvalued, not because it has gone up by 100pc," he said.
One of his oldest holdings remains in his portfolio today. The company, FW Thorpe, a family-run business that provides lighting to the public sector, has seen its share price rise from around 100p in 2000 to 837p today. "It's a fascinating company that has always had a Thorpe at the helm," he said.
And his latest purchase? "This week I have bought Imperial Tobacco for the first time. It looks undervalued to me, has an attractive yield and is unlikely to go bust."
