Having enough money to do whatever you want is the dream for most people, but can you make this dream reality by prudent investing in ISAs?
ISAs are a robust and reliable savings platform for millions, but most have modest savings rather than a gilt-edged £1 million.
Financial experts at wealth management firm Fidelity International realised this, so put their heads together to find out if a lifetime of modest savings could make that millionaire dream come true.
The problem they identified is savers would soon lose interest if they had to stuff their ISAs with wild amounts of cash from the start, leaving them asset rich but cash poor when they needed to provide for a family and buy a home.
The starting point was a saver’s 25th birthday.
How to make a million from an ISA
From then, an achievable saving of £48 a week or £208 a month, adding up to £2,500 a year would be the first step.
The next milestone comes at the 30th birthday, when the saving rate is doubled to £5,000 a year for the next decade. Although the figures go up to £96 a week or £216 a month, hopefully wages have increased to ease the savings plan as well.
At the 40th birthday, the numbers double again, so our saver is squirrelling away £10,000 a year at a rate of £192 a week (£432 monthly).
The last supercharged savings boost comes on the 50th birthday and lasts until the 64th birthday, redoubling the effort again to set aside the current maximum of £20,000 a year in to an ISA (£385 weekly / £864 monthly).
The magic number for these years of saving is a savings pot of £462,500.
Time is money for savers
This is short of the target, but does not take in to account modest growth of 5% a year compounded.
“The main message here is just how effective it is to start investing early, and regularly, even if you don’t end up filling up your ISA in your 50s,” said Daniel Lane, of Fidelity personal Investing.
“Each of our personal investing amounts will be different, as will our goals and risk tolerance, but the value of giving your money the time it needs to compound over the long term is undeniable.
“I think another important aspect of this analysis is that it’s clear investing is not just the preserve of the already-wealthy. Even by contributing as little as £50 a month you could generate £19,818 in 20 years – you don’t need to start off with a lot of cash, just a lot of time.
“What’s more, the long-term compound effect on investing even small amounts remedies the feeling of ‘why bother?’ especially among young people contending with daunting goals like house deposits and lengthening retirements.”