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The secrets of the ISA millionaires

Graphic of some UK currency plus text stating: how to make up a million

This post on the cult of the ISA millionaires is from our newest contributor, Finumus! Look forward to more unmistakable articles in the months ahead from our latest star signing.

Once again ISA season is upon us – it’s a use-it-or-lose-it allowance with a sell-by date of 5 April – and so all the platforms are trying to attract inflows.

This means a stream of puff pieces about how to join the ranks of the ISA millionaires.

All these articles are in pretty much the same style. The author finds some clients who have more than one million pounds in their ISA – with that one platform – and then asks them about:

  1. How long they’ve been investing
  2. How much they saved
  3. What they’re invested in

The writer will then make some blasé assumptions about savings and returns, in order to persuade readers that a £1m ISA is within the reach of an ordinary investor.

They would say that though, wouldn’t they?

Leaving aside that it might be a bad idea to draw attention to these ISA oligarchs (hands up if you want an ISA Lifetime Allowance?), there’s a lot wrong with this kind of article.

Because aside from time, they don’t mention the real reasons people achieve ISA millionaire-dom: luck, poor risk management, and survivorship bias.

Luck

I don’t mean the picking-the-right stocks sort of luck. I mean the ‘having enough disposable income to save tens of thousands of pounds every year’ sort of luck.

If you’re going to max out your ISA contributions, you’re going to need £20,000 of post-tax excess income.

That’s a lot. You’ve probably got to be approaching a six-figure pre-tax income.

Of course, you’ve achieved that because of all your own hard work, right? Not because you were born into the right sort of family, went to the right sort of school, scraped into a posh university, and then got recruited on the fast-track to upper management?

No, all your own hard work. Luck has got nothing to do with it.

ISA millionaires do need to get lucky picking assets or stocks, too.

  • Started in 1999 and prone to a bit of home bias? You’ve probably not made a million in the FTSE 100.
  • Started a couple of years ago and went all-in on the Scottish Mortgage Trust (Ticker: SMT). That is to say: you made a big bet on Tesla? You’re probably well on your way.

So, one way to get there is to take an inappropriate amount of risk. Just put all of your £20,000 of savings into your ISA, buy a 50-bagger, and you’re done.

Which brings us to….

Poor risk management

There’s a famous and often-quoted study by Fidelity, which supposedly found that the best-performing investment accounts were those whose owners had either:

  1. Forgotten they had the account
  2. Died

Now as far as I know it’s apocryphal – there was no such study. But nonetheless the point is well-made.

What do these people have in common? Sure, they don’t over-trade. But also they exercise no risk management.

Let’s say you invest your whole twenty-grand into the (imaginary) Finumatic Inc. It’s a SPAC1 that’s buying an electric-spaceship-crypto-mining-NFT start-up.

Now of course this thing can go up 50-fold, which is exactly what you want if you’re to join the ranks of the ISA millionaires.

But it’s not going to do it all in one day. And while it’s going up, it’s becoming a bigger-and-bigger fraction of your wealth, asymptotically approaching 100%.

Is this exciting?

Yes.

Is this sensible?

No.

The sensible thing is to sell some on the way up, and then diversify into less exciting assets.

The dangerous thing is to just cling on with ‘diamond-hands’ and not sleep very well at night.

But of course, some people will do just that – or forget they have an account – and some of these dodgy stocks will actually go up and stay up.

(This, incidentally, is why the ‘if your great-grandad had bought $100 of Berkshire Hathaway stock you’d be a billionaire’ trope is also ridiculous. A relative would have sold some along the way.)

There’s another indicator that these people are poor risk managers, which is that they leave all their money with Hargreaves Lansdown or whomever.

Now, I’ve nothing against Hargreaves Lansdown (apart from the obvious) but the FSCS scheme for compensating investors in the event of a platform failure only covers the first £85,000 of your money.

At best, these all-in clients are being naive about how robust the so-called ‘segregation’ of client assets is when the shit-hits-the-fan.

More likely, they haven’t even thought about the worst kinds of failure.

(Either that, or they’ve got several million squirreled away across multiple platforms. But certainly not all of them).

Survivorship bias

If you’re a big DIY investment platform, you have millions of clients.

Some of them behave sensibly. Some of them behave recklessly.

Most of the reckless ones won’t get rich, but a few will become ISA millionaires! Just by chance!

Okay, they probably don’t review the lucky randoms for these articles. Still, if you take a large enough sample, and then you only talk to and about the ones who got lucky, it does give the appearance that ISA millionaire-dom is within reach of the regular punter.

When really, it’s not.

The real secret of the ISA millionaires

Source: xkcd

  1. Special Purpose Acquisition Company. Also known as a blank cheque with big fees attached. []

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{ 52 comments… add one }
  • 1 Not as Smart as I thought March 25, 2021, 11:04 am

    Hold on: My ISA suffers from platform risk? I’d assumed that it was a segregated funds thing, so that if Charles Stanley Direct goes bust my funds just get transferred somewhere else like a pension pot. Is that not right?

    Dammit. I actually can max out (or close) my ISA allowance each year. In 5-10 years I’ll have to have a handful of separate ISAs just to avoid platform risk.

  • 2 Neverland March 25, 2021, 11:05 am

    Eh I got one of those emails from Interactive Investor detailing their 55 ISA millionaires (most of them will have been ex-Alliance Trust Customers)

    There is one simple reason they were ISA millionaires – average age 70

    They have been putting money into ISAs since when they were PEPs so its no great surprise eventually they end up rich if they achieve historic average equity returns and make no withdrawels

    Also I take issue with your description of HL as risky. At least they are public company which issues accounts with no debt versus some Israeli fintech start up with an app

    There are a few systematic banks you know will be bailed out (because they were in 2008) and people like AJ Bell/HL and that is about it in terms of ‘safe’ platforms you can use

  • 3 The Investor March 25, 2021, 12:14 pm

    Congratulations @Finumus! You’ve posted your first article on Monevator and already received your first trolling from @Neverland — a comment masquerading as constructive feedback riddled with snark (“eh” “I take issue” etc).

    Finumus says in the article “besides aside from time” to the first point on age and “I’ve nothing against Hargreaves Lansdown” to the second point. It is @Neverland’s standard tactic to either make up stuff to retort about, or else repeat stuff from the article as if it wasn’t mentioned and he’s bringing it to the table. Sigh.

    I do agree that Hargreaves Lansdown being a public company and also it’s size is reassuring (though not entirely. Enron, banks, etc.), which is a fair point. Maybe work on that side of your commenting strategy @Neverland. You can do it! We believe in you!

    @Not as Smart — Your money along with other client money absolutely should be segregated. I am sure this is the case with Hargreaves Lansdown right now. Creditors have no legal right to it if Hargreaves Lansdown goes bust. Etc.

    So why raise the issue?

    (1) Because sometimes things aren’t set-up as they should be, either through incompetence or something else. There have been financial providers that have gone bust in the past where this has proved to be the case.

    (2) Because even if you do eventually get your money back, which is overwhelmingly likely for all the major platforms, even in a time of great stress in the financial system (which is the sort of time we’d be talking about — you’re frozen out of your accounts, the stock market has fallen 60%, there’s maybe a run on a bank etc, not a bright sunny day like today) it could take a long time for you to get your hands on it, or for you to be satisfied it has been properly transferred. Not having all your eggs in one basket, as some of these ISA millionaires do, guards against that risk.

  • 4 mr_jetlag March 25, 2021, 12:33 pm

    Nice one… is monevator cornering the market on FI blogger consolidation? (I jest, but its nice to see collaboration between some of the sites I lurk/read on, makes the community feel even more connected)

  • 5 UK Income Investor March 25, 2021, 1:00 pm

    The point about poor risk management is an interesting one. I believe there is a study out there that shows the original S&P 500 constituents outperforming the index. I think it was made in one of Jeremy Siegel’s books but I’ll have to dig them out later to double check. One to chew on, though it doesn’t detract from the point about some super concentrated PF consisting of SMT, TSLA or whatever else has had a great run in recent years. Give it fifteen years and there might even be the odd Junior ISA millionaire piece now that the allowance is £9K…

    Thanks for the article!

  • 6 Michelle / Fire & Wide March 25, 2021, 1:14 pm

    Hey – awesome first post. Like it.

    But I admit – I’m guilty as charged!! It was me! All be it by accident!

    I had the opportunity to do my first ever newspaper interview as a female millionaire, not ISA millionaire. Both of which I still find weird tags but ok,whatever.
    My hope was to show it is possible for normal people. Which given I wasn’t born into the right family, right school, right uni etc combi I do think is helpful to show it can done.

    But I absolutely agree I’m not the norm (is anybody who is serious about FIRE?!) and I did end up in a 6-figure job still. So we end up agreeing on that one .

    And yeah, the article I was in as a whole wasn’t exactly the best, so hey, lessons learned & all. At least I got to try something different.

    Congrats – nice choice Monevator – look forwards to hearing more.

  • 7 Neverland March 25, 2021, 1:19 pm

    @Investor

    Thanks, I think? Here is some constructive feedback with facts.

    If you put all of the PEPs/TESSAs/ISAs in from 1986 onwards and apply a c. 6.5% annual return in after costs you are an ‘ISA millionaire’ in 2021

    Source: https://www.isaco.co.uk/isa-history (plus TESSA roll-in from 2003 or 2005 I can’t remember)

  • 8 Neverland March 25, 2021, 1:22 pm

    @ mrjet_lag

    Monevator as the interactive investor of UK pf blogging?

    Awful IT architecture? Well it does have a very old-fashioned user interface

    Evil venture capitalist owners? Hmm…

  • 9 Not as Smart as I thought March 25, 2021, 1:58 pm

    Many thanks Mr Monevator, good points made. And many thanks to Finumus for the article.

  • 10 Matthew March 25, 2021, 2:48 pm

    Could markets be driven up eternally somewhat by dead people’s trust funds? Passively accumulating, not being wound up by probate?

  • 11 Neverland March 25, 2021, 2:52 pm

    @Matthew

    Thats basically capital in the 21st century by thomas picketty

  • 12 Al Cam March 25, 2021, 4:39 pm

    @Various:
    Re: Platform Risk
    IMO this post should be recommended reading as it describes a real lived experience rather than an abstract theoretical risk: https://fireandwide.com/asset-liquidity/

  • 13 Zubon March 25, 2021, 5:04 pm

    Finumus using a bit of platform leverage to get a wider audience? Nailed it!

    To Finumus’s point, it doesn’t matter which platform you use; if you only use ONE to hold £1mln vs the FSCS £85k guarantee, despite there being a multitude of (free/cheap) ISA platforms that confer you the same guarantee (and the same products), you are taking on highly concentrated (platform) risk.

    I treat those platform fees as essentially part service, part insurance. For context, purely on an insured amount vs cost basis, annual £100k of home contents cover costs (me) £55 ~ £100.

    Some investors just don’t optimize for the insurance part… whats £85k worth to you? RIP Lehman, and the formerly UK listed brokers SVS Securities (2019) and AFX Markets (2019).

  • 14 Lesley March 25, 2021, 5:13 pm

    Great article and interesting comments as ever. The platform risk is one that lurks in the background for me not for ISAs that’s easy to manage but for my SIPP when I go into drawdown . I will probably go for H&L or Vanguard ( I will check the fees when the time comes ) but I can’t see another way round of managing the risks. It’s perhaps why I am not as keen for a race to the bottom on fees as does this increase the level of risk ( the link to the article on the platform that went bust stated it was chosen as very low fees ) . Just a thought but I would rather pay a tiny bit more and not worry about liquidation and taking a year to get my money out

    Lesley

  • 15 Accidentally Retired March 25, 2021, 5:25 pm

    The Fidelity findings are all you need to remind me why I became a Boglehead. It’s just better to invest long-term, set it and forget it!

  • 16 Neverland March 25, 2021, 5:42 pm

    @Zubon

    Not all platforms are created equal though

    If you have a 2x ISAs, 2x SIPPS and 2X GTAs that is already six platforms across a couple

    There aren’t even really six non-shady fixed fee platforms on the market

    Then if you are going to diversify your platforms whats the point when it is all in Vanguard funds…

    Investing via SVS, beaufort and AFX looked stupid from the start

  • 17 ZXSpectrum48k March 25, 2021, 5:53 pm

    As one of the “lucky ones”, I can easily buy the idea that there is a dose of luck involved. I can also buy the issue of survivorship bias.

    Where I disagree more is that, assuming you have the funds to make annual subscriptions to an ISA, that it is only “luck” to reach £1mm. Or that it require multi-baggers, poor risk management, high concentration risk etc.

    Assuming you started investing in your S&S ISA in FY99/00, then a 70/30 portfolio of S&P/long-dated Gilts turns the total subscriptions of £246k into around £738k now. A 100% S&P portfolio would be £849k.

    So the balanced portfolio needs an extra 2.7%/annum, the 100% S&P portfolio 1.5%, to get you over the £1mm line. That could stem from luck but it’s hardly impossible to achieve via some modest active management decisions. It doesn’t require really multi-baggers: buying Amazon, Tesla, Bitcoin. Nor does it require backing one share/fund/market.

  • 18 JimJim March 25, 2021, 6:47 pm

    Nice first post Finumus, glad to see you here. Free Capital by Guy Thomas was a fascinating read when it came out in 2011, it is perhaps, one of the few books I have read on finance multiple times. And if there was an earlier ISA millionaire book, I don’t know it. It helped me know the type of investor I was comfortable being and the type I could never be. I may never be in the ranks of ISA millionaires, but really, I don’t need to be. If the fluff peices encourage savings, and not just speculation, then perhaps they have a purpose. Neverland, count me out of the poll
    JimJim

  • 19 ermine March 25, 2021, 8:02 pm

    Most of the win for me is in having two accounts rather than one, and the two I do have (iWeb and Charles Stanley) are very different. I pay no fees at all on iWeb other than on buying and selling because I have no OEICS, so I have most in there, and CS is a flexible ISA but is dear, so I have funds there, and pay over the odds to get the flexibility. But the iWeb is well over FSCS.

    It’s like many things in engineering – you improve resilience by having a main and a standby. You can do better with more paths, but most of the win is had in moving from a single point of failure, and complexity goes up.

    However, the CS account has less in, because I have had the lowest-fees mantra drilled in to me from here. Perhaps I need to put next year’s ISA contribution into CS, despite paying more, because I am not a young man at the start of my working life. Paying a bit over the odds is less bad as there are fewer years for it to accumulate, I have found the flexible ISA access really handy several times and the regular investing feature is a good hands-off compared to iWeb where it’s manual only. Perhaps a younger investor would need to flay fees on both accounts, but an older one may find value in diversity of account types, getting the resilience and also having most in a hair-shirt low cost operation and some in one with more facilities/flexible access, which are probably less important at the start of your journey than later on. Flexible ISA access is particularly useful in that tough RE to 55 gap, and tends not to be a low-end offering.

  • 20 c-strong March 25, 2021, 9:27 pm

    Welcome Finumus! Good first post.

    I think platform risk tends to be over-emphasised. I am fantastically relaxed about having several multiples of the £85k FSCS limit with HL. I’d be just as relaxed if it was all with any one of 5-6 other providers. Possibly I’m influenced by the fact I’m a financial regulatory lawyer and know first hand how incredibly onerous the FCA client assets rules are, and the lengths (decent) firms go to in order to comply with them. One point that is rarely made is that every firm has to be audited annually on their compliance with the rules, so you’re not just taking their word for it.

    It’s true that, as TI says, it has sometimes taken a long time to get assets back from failed firms, though at least in theory the “resolution pack” firms must now have should mitigate that risk.

  • 21 MW March 25, 2021, 10:35 pm

    Finumus makes a valid point about considering mitigating platform risk. Having a chunk of assets on Interactive Brokers I am aware their terms and conidtions make clear client assets on their UK platform are mostly covered by US financial compensation not the UK’s FSCS. The US compensation limits are higher, but my holdings probably exceed either amount. I don’t like that degree of exposure but like what Interactive Brokers offers, but I don’t know how effective the US compensation system would be.

  • 22 Finumus March 25, 2021, 11:00 pm

    The thing about platform risk is it has to be considered in the context of your overall situation.

    If 90% of your assets are your £1m ISA, and it’s all in HL, I’m not saying you should be worried, but is that sensible? If they fail, best case it would take a long time to get your money back. However, if you’ve got a net worth of £5m, and you have £500k in your HL ISA, I think you can be fairly relaxed.

    You can’t trust segregation, it relies on them actually segregating the assets, can you verify yourself that this has been done? Of course you can’t.

    FWIW – Some members of my family have ISA’s across 6 providers, this is expensive, but as @Zubon points out, partly you’re paying for insurance.

  • 23 beeka March 25, 2021, 11:30 pm

    Nice post, and would agree that the articles only pick out the winners.

    I’m also in the camp of the FSCS / platform risk being overplayed, so the link to a real experience does make me think a backup platform might be reasonable… so I take the point that it would then require someone to have >£1m to be pulled out of the stats and into newsprint.

    For me, dividing up £1m to be within the FSCS limit (i.e. >10 platforms) probably increases the risk of finding a dodgy platform… not to mention all the admin involved… and might not help much. I’m with Interactive Investor the protection available is not very obvious to me, despite reading the blurb several times (https://www.ii.co.uk/about-ii/your-protection). The trust status of the cash + nominee accounts should mean I get it all back, assuming no fraud / mismanagement, although it might take some time (12-18 months?). The £85k limit is most likely to apply to cash, but as they deposit it with other banks, that protection might be useless to me (if I already hold £85k savings in that bank). Or do I benefit from multiple £85k, if for some odd reason I keep £1m cash in II?

    I don’t consider myself naïve, in that I’ve been thinking about this a lot since realising that I’d have to work another 10 years if my II holdings just vanished. However, it feels like paranoia to assume all platforms are just lying about the segregation. The biggest issue is not knowing what the reasonable probability of something going wrong is and a likely financial impact: two things needed in a risk assessment to determine an appropriate mitigation.

    Is there a generally accepted number of investment platforms to use? Is that to cover liquidity risk (which I’ve got other ways of managing) or against losses from someone with keys to the trust giving my assets to a “Nigerian Prince”? Is there a platform that II isn’t going to buy?

  • 24 Al Cam March 26, 2021, 12:47 am

    @beeka (#23)
    Chatter in comments to:
    https://www.finumus.com/blog/what-if-my-broker-goes-bust
    may be of interest to you

  • 25 Michelle / Fire & Wide March 26, 2021, 8:04 am

    @Al Cam #12. Cheers for sharing my post. You are right – it is a perfect real life example of exactly what this post is talking about!

    Honestly, I was so glad it wasn’t our only trading platform and that it wasn’t our only source of income. Especially as it was my first year after retiring early!
    It would have been so much more stressful to manage through the 18 months it took to get access to my assets again if we hadn’t already been split across different ones.
    It’s one of those things it’s really not that difficult to do & well worth it, my 2- worth from experience!

  • 26 The Investor March 26, 2021, 9:41 am

    Is there a generally accepted number of investment platforms to use?

    @beeka — Definitely not. 🙂 There’s always a lively debate around this topic.

    However I would say that people (like yourself here) talk about the risks of being overly paranoid, finding a rogue platform if you spread your assets across 10 platforms (which I agree with), suggesting those of us who are more cautious might be implying “all platforms are lying about segregation” (I’m not saying that anyway. I’m saying sh*t happens) etc — all this is going to the other extreme IMHO.

    (Not necessarily you, your comment is more nuanced. I’m generalizing. 🙂 )

    It’s like people who debate the pros and cons of owning bonds these days, but then say “so I don’t own any guaranteed money-losing bonds”. Okay… so why did you debate the pros and cons then?

    My view, as @ermine says above, is that the downside of a platform failure / “issues” dramatically collapse if you spread your money across two platforms rather than one.

    I personally agree there’s (very probably) not any sort of systemic problem with segregation (though you never know when things are tested in courts etc… but that’s my ultra-paranoid hat on!)

    However fraud/incompetence/bad legal advice/whatever could in theory pop-up anywhere — more likely at a smaller player than one of the big guys.

    So hold the bulk of your assets across two platforms and you’ve dramatically reduced the risk of a massive amount of grief, at least, if something goes wrong and you lose access to your money for a few weeks/months (or, unlikely, worse).

    There are definitely more than two very strong platforms out there.

    I say why not? 🙂

    I well remember at the height of the financial crisis when I couldn’t log into a certain very high-profile retail account I had — for more than a day.

    Did I seriously think I’d lose all my money, even with the backdrop of bank runs etc?

    No, I did not.

    Was I glad all my money wasn’t in there when I weighed up those odds and tried to think and act rationally?

    Beyond glad! 🙂

  • 27 The Rhino March 26, 2021, 10:40 am

    I changed my setup as of autumn 2019 with exactly this issue in mind. Where I’m at now is as follows:

    ISAs/GIAs used to feed ISAs -> IWeb (~55% assets)
    GIA -> HL (~20% assets)
    SIPPs/JISAs -> YouInvest (~25% assets)

    HL is all ETFs/ITs.

    Plus I specifically started buying non-vanguard equivalent stuff.

    I think this is a reasonable start, but still room for improvement.

    Would be interested to see real examples of how others are slicing and dicing.

  • 28 Al Cam March 26, 2021, 1:08 pm

    @Rhino:
    Pretty much with you re platform splits.
    Currently using three; a few years back it was just the one – but that was probably fully protected anyway.
    And FWIW, I strongly second your: “I specifically started buying non-vanguard equivalent stuff” comment too!

    I have seen a very similar movie before. But that was years ago and it featured Northern Rock! Funny thing about that incident was that we were away on holiday when it all blew up and knew nothing about it until arriving home to find the financial equivalent of a Dear John letter! Rather knocked the shine off that holiday. In the end, it did all come good though!!

  • 29 Naeclue March 26, 2021, 1:15 pm

    If you count PEPs as well, it was easily possible to accumulate more than £1m into ISAs with just average market returns.

    Between 1987 and 1998 it was possible to contribute about £64k to PEPs. The UK market is up by a factor of about 5 since the mid 1990s, so just these PEP contributions and average UK market returns would have got you a third of the way. Then there were single company PEPs, another 24k between 1991 and 1998. Average performance with these would have been about another £120k. On top of those were TESSAs, which were eventually merged in although I forget the precise history.

    I am not disputing the “Luck” required to be able to max out annual contributions, but no stock picking luck would have been required to accumulate over £1m.

  • 30 Brod March 26, 2021, 1:26 pm

    Diversification seems prudent. My SIPP is all ii, my ISAs split across iWeb and Freetrade, and cash with Premium Bonds (you never know…) I guess I could split the SIPP, but if the money wasn’t available for a year or so, no big deal, if it was a permanent loss, disaster. Biggest holding is HSBC FTSE All World Index C and the rest mostly a mixture of Vanguard and iShares.

    Chancellor might be getting desperate so one form of diversification is that I might UFPLS £20K using part of my 25% tax free dosh to fund my ISA this year rather than use my Premium Bond money, just to demonstrate I’m in drawdown already. I presume I can UFPLS £100k, but leave the 75% which would be taxed invested? Any growth would be without the benefit of PCLS? Need to check the rules.

  • 31 JDW March 26, 2021, 1:46 pm

    Thanks for the article and the comments.

    I guess the appeal of risk-spreading and diversity that passive indexes offer also applies to the platforms right? I’m a big believer in not putting all your eggs in one basket, partly as I’m a very cautious individual, partly after having my fingers burnt through previous losses when I was younger/less experienced.

    I like HL, the service they provide, but currently, across my portfolio I’m very heavily weighted towards them (probably about 70% of my total, including workplace pensions etc). I am not tempted by the small upstarts as things stand, even with the lack of dealing fees, due to what I see as the potential risk of organisational failure being much higher in a start up. Looking at HL and AJ Bell etc, they are very well run companies with strong balance sheets. In the next year or two, I plan to move my S&S ISA away from HL due to the platform fees, likely to ii, as my main account that is roughly 80% passive (mainly Vanguard) and 20% active, and have continue put lower amounts into two SIPPS and a Lifetime ISA for the long run, again mainly passive, but NOT Vanguard indexes, likely in HL and AJ Bell. I must point out that being only two years into my FI plan, I am still below the FCS limit completely in total so perhaps getting ahead of myself somewhat, but good to be aware of it I guess! In summary, I see it as diversification and risk spreading is good, but not too much. Will platform one fail? Unlikely. Will they all fail? Almost impossible. But I would rather have lots of medium size pots and lose one than lose one big one and have to start again.

  • 32 Al Cam March 26, 2021, 1:48 pm

    @ Ermine (#19)
    Good point re “Flexible ISA access is particularly useful in that tough RE to 55 gap, and tends not to be a low-end offering.”
    FYI, see:
    https://www.vanguardinvestor.co.uk/need-help/answer/is-the-vanguard-isa-a-flexible-isa

  • 33 MrOptimistic March 26, 2021, 2:58 pm

    Re protection a similar thread is running on citywire. Problem is that once you get to high 6 figure sums it becomes impractical to try to spread it around numerous accounts to keep below £85k limit. We spread our investments across three platforms. If one of these gets into trouble there will be a fair chance something systemic is involved in which case diversification might give little protection.

  • 34 Steveark March 26, 2021, 4:51 pm

    I only participated in my 401K in the US from about age 30 to age 60 and easily built an account worth over a million pounds. I’m not sure if it had some advantage over a UK ISA or if they are basically identical. If the ISA is handicapped by design in some manner vs the 401K this comment is irrelevant and I apologize for congesting your space. At least in the US I think it would be nearly automatic for someone who starts at age 22 and stays in until 65 even if they do not contribute the max amount each year. That extra 13 years of compounding would be huge. I wasn’t even close to investing tens of thousands of pounds or dollars each year until very late in my career when the contributions have very little time to compound and are almost meaningless in terms of impacting your account balance. We were a single income family with three kids. It didn’t seem difficult at all to amass a million pounds worth of dollars in my 401K, it really seemed inevitable. I did make decent wages in a low cost of living area and avoided lifestyle creep.

  • 35 Vanguardfan March 26, 2021, 5:38 pm

    I’m of the ‘magic number is three’ camp too. But I also agree it’s hard to find decent flat fee offerings, especially for funds. (@ermine, iWeb is zero cost for OEICs as well).
    Still somewhat over-exposed to Vanguard though.

  • 36 Marco March 26, 2021, 11:17 pm

    I need to go to the single platform naught step. We have 6 accounts with HL, with 1.2mil all in VWRL.

    I’ll be honest, it’s almost an impossible psychological barrier for me to overcome to make things more complicated.

    I do think HL are too big to fail. After some lucky escapes and unlucky catastrophes with fintech/P2P I have zero trust for small/cheap outfits. HL is incredibly cheap for ETFs anyway.

  • 37 DavidV March 26, 2021, 11:48 pm

    @Steveark (34) If my understanding of the US system is correct, our ISA is roughly equivalent to a Roth IRA. You fund it from after-tax income (currently up to £20k/year but annual limits were lower in the past). All growth and income in the ISA is tax-free, both within the account and on withdrawal. They are completely independent of your employment and it would not be normal for an employer to make any contribution to your ISA. Employer contributions are instead made to your occupational pension (either defined contribution like your 401K or defined benefit). It is also possible to have a standalone pension plan (equivalent to an IRA?) where contributions attract tax relief. Growth and income within the pension are tax-free, but on withdrawal or annuity purchase only 25% is tax-free. Pension plans where you manage your own investments are known as SIPPs (Self-Invested Personal Pension).

  • 38 BillG March 27, 2021, 8:45 am

    ISA Millionaires.
    One point that was not mentioned (or I missed it) is that ISA allowance is transferred between husband and wife upon the death of a spouse. So a couple would have been saving for some time who was unlucky enough to loose a partner could become an ISA millionaire without either person having taken excessive risks. Given the population there must be some millionaires who fall into this category.
    BillG

  • 39 jim March 27, 2021, 10:59 am

    JDW, is it lower fee then to hold a vanguard fund through AJ Bell than HL?
    Must look into although don’t know how you would go about swapping. Could give me the incentive to spread across 2 platforms.

  • 40 JDW March 27, 2021, 4:05 pm

    @jim. Someone with greater experience and expertise can correct me if this incorrect, but my understanding, based on this website, the sharings of @TA and @TI and others (don’t forget this website also has a great broker comparison page)……HL has a 0.45% platform fee. AJ Bell is a much cheaper at 0.25% plus £1.50 per fund transaction regular investment fee. I believe there are also SIPP fees on top but haven’t got that far yet tbh. ii really appeals to be for the flat fee of £9.99 per account but has reinvestment fees to consider, unlike HL.

    I have majority of what is in my S&S ISA in Vanguard Lifestrategy 80%, which has a 0.22% fund fee. As the ISA will be my main account, I plan to move that from HL to ii, once the monthly charges for HL exceed the threshold (plus a bit more considering dividend reinvestment fees) and makes HL a more expensive platform than ii in the long run for charges, but there a pros and cons to each platform for sure. Vanguard offer a direct platform service too, at 0.15%, capped at £375 I think? (Not 100% sure on that with looking, limited to vanguard funds only there though)

    I have no problem with HL, they offer a good service, but it’s just more expensive in the long run and I plan to be using my ISA for larger holdings, hence wanting to keep one SIPP with them, which will just be something like one of the L&G Multi Index funds for ease. Same with AJ Bell and their Adventurous fund, which is 0.32% and is ok with me. Set it up, pay regularly and leave it till retirement/FI. Plan on a little bit of active playing in the ISA, but not much.

    Can’t comment on the transfer process yet I’m afraid but looks simple enough on the respective platforms websites. I have previously consolidated previous, albeit small, workplace pensions info my current HL SIPP without any problems. I have probably missed something, so please don’t take the above as gospel!

  • 41 Ali March 27, 2021, 10:06 pm

    I’m interested in investing in Scottish Mortgage (mentioned in the article). Looks like I can do this on Freetrade. How does Freetrade levy this trust’s fees. Does anyone know?

  • 42 The Investor March 27, 2021, 10:49 pm

    @Ali — With investment trusts the fees (and its other costs and expenses) are paid using some of the money generated by the company (the trust) in either selling shares in its portfolio or else from the dividends and other forms of cash received from the companies the trust invests in.

    So you don’t have to pay extra money once you buy the shares.

  • 43 Al Cam March 28, 2021, 10:27 am

    @Finimus (#22)
    Re: “FWIW – Some members of my family have ISA’s across 6 providers, this is expensive, but as @Zubon points out, partly you’re paying for insurance.”
    Is it possible that this is more about perceived peace of mind and they are possibly over complicating matters and might be paying too much for theoretical insurance? That is, in the event that the FSCS scheme went belly up all bets would be off anyway.
    Just a thought.

  • 44 WhiteSheep April 2, 2021, 6:25 pm

    @Al Cam
    > That is, in the event that the FSCS scheme went belly up all bets would be off anyway.

    That’s why I have not only 6 investment accounts, but with providers spread across several countries and regulatory regimes. 🙂 But yes, of course this is addressing a very unlikely tail risk. However, depending on your choice of platforms, it is not necessarily that much more expensive than a single account – the main drawback is the tax paperwork.

  • 45 Al Cam April 3, 2021, 12:41 am

    @WhiteSheep (#44):
    That is an interesting comment – what more can you tell us?
    For example, does this mean you choose to compromise on some of the tax benefits, such as offered by UK SIPP and/or ISA?

  • 46 WhiteSheep April 4, 2021, 9:09 pm

    @Al Cam
    Tax shelters are prioritised and so those holdings are all UK-based (I think technically you could have a Recognised Overseas Pension Scheme, but that really seems like a lot of hassle even to me). Savings accounts are mostly UK based. But taxable general investment accounts are mostly abroad (US and eurozone).

    To be honest, I acquired some of the accounts through work. I am not sure I would have gone down that route otherwise. However, it does seem like another layer of protection against some forms of William Bernstein’s “Deep Risk”.

    If you choose providers who are willing to accept you, I did not necessarily find it that difficult to open accounts abroad. Once the accounts are set up, they mostly run themselves like any UK based account (Interactive Brokers or Transferwise are good for money transfers). And it doesn’t have to be expensive – my total annual platform charges excluding dealing fees are much less than 0.1% of assets. Tax complexity is the main drawback (you may have to track income and capital gains manually – a huge disincentive to trade much, although arguably a plus for a passive investor), and you may have to file something with the local authorities (e.g. the W-8BEN form in the US every other year).

  • 47 Al Cam April 5, 2021, 12:57 am

    @WhiteSheep (#46):
    Thanks for the additional info.
    Isn’t it odd how often we stumble into things?
    I am familiar with William Bernstein’s risk model (shallow/deep). However, I am not sure where I can acquire a suitable “interstellar spacecraft”!
    The major advantage/disadvantage (take your pick) I can see with overseas a/c’s is around currency diversity.

  • 48 NearlyThere April 5, 2021, 8:56 am

    There is another risk that the ISA millionaires are taking on, if held in a single platform, which is left as an unpleasant legacy for their executors and beneficiaries. On death, transfer to a spouse is easy, but to anyone else the inheritance tax has to be paid before probate will be granted, and nobody (even executors) can get their hands on any of the money until after probate. This creates a cashflow crisis – someone has to find the money to pay the tax before the money that is being taxed can be released. Some, but not all, platforms help here with a scheme called ‘Direct Payment’ where the executors can ask the platform to pay the tax directly to HMRC (IHT423). This is not widely promoted as a feature of a platform, and platforms have been known to withdraw from the scheme (Fidelity was in it, then wasn’t, and apparently now is again). For an ISA millionaire, the amount of cash required to bridge the probate gap could be substantial.

  • 49 Al Cam April 5, 2021, 10:37 am

    @NearlyThere (#48):

    Thanks very much for sharing this information – both the Gordian knot and a potential (but not necessarily straight-forward) solution too!

    Do you know how to find out if a platform is currently a member of the ‘Direct Payment’ scheme?

    Re: “On death, transfer to a spouse is easy, …”
    Have you experience of this transaction type?
    I ask as I have heard / read that it can actually be a bit more tricky than you may assume.

  • 50 NearlyThere April 5, 2021, 5:20 pm

    @AlCam you find out for sure when it is too late. What they do today is no promise for what they’ll do when it is needed. Fidelity don’t mention the scheme by name but have a thing in their website about helping to pay inheritance tax. So searching websites and contacting support is there way to find out. The old incumbent banks seem to participate, as does NS&I. None of the bereavement teams, excellent though they were, mentioned it – you have to know about it to ask for it.
    For spouse transfer I only meant in the sense that there is no IHT due, so no need to find cash to pay it. Holding cash in joint names is a way for a partner to have access to money to live off pending probate, if that’s likely to be needed.

  • 51 Al Cam April 6, 2021, 11:55 am

    @NearlyThere (#50):
    Thanks for the additional info.

    Your sentence “None of the bereavement teams, excellent though they were, mentioned it – you have to know about it to ask for it.” somewhat intrigues me. For example, what other helpful info are they not telling?

    If @TI is watching:
    the whole area of probate sounds like a suitable topic for future posts – a tad gloomy but probably useful. Apologies if you have already covered it – but I do not recall seeing such a post.

  • 52 Harps April 13, 2021, 10:17 am

    @Neverland #2

    “There are a few systematic banks you know will be bailed out (because they were in 2008) and people like AJ Bell/HL and that is about it in terms of ‘safe’ platforms you can use.”

    Why do you assert that AJ Bell & HL are the only ‘safe’ platforms?

    Do others share this view? Moreover, what other platforms are regarded as ‘safe’/’less safe’ and for what reasons?

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