The number of people to hold more than £1 million in their tax-free ISA now stands at around 2,000, it has been revealed.
Remarkably, the 60 most successful ISA investors boast an average pot size of £6.19 million, according to data compiled by Investing site Investment Reviews.
To put those eye-watering sums into context, the site highlighted how a PAYE employee "would need a gross salary of approximately £842,000 to take home the same sum after paying Income Tax, National Insurance and pension contributions".
Earning 25% EVERY year
Becoming an ISA millionaire isn't just a result of simply maxing out your annual allowance each year.
As, Laura Suter, head of personal finance at AJ Bell, points out:
“Someone who put the full allowance in their ISA each year since their launch in 1999 and who earned a steady 5% return a year would have built up a pot of just over £441,000 – not even close to being an ISA millionaire.
"If we assume [ISA millionaires] started when ISAs launched and put the full allowance in, they’d have to have earned 25% returns a year on average every year since then.
"Even if we include ISA predecessors, PEPs, they’d still have to have achieved returns of 15.5% every year to get to a pot of £6.2m today.
"In reality, these investors probably made a few very savvy bets that rose dramatically in value and a few more stable returners."
10 steps to becoming an ISA millionaire
So, with ISA season looming (remember you have until midnight on 5 April to use this year’s £20,000 ISA allowance) here are the steps you can take to potentially join this elite club.
1. Get cracking
The only way you can start on the path to becoming an ISA millionaire is by getting some money – no matter how small – into an ISA.
You don’t need to start with a big cash sum, small regular savings will soon start to build up. As little as £85 a month would give you over £1,000 in 12 months.
If you do start small, make a note in your diary to re-assess how much you are saving once a year to see if you can afford to tuck a little more away.
2. Make the most of your allowances
Allowances have rocketed in recent years, with the annual ISA allowance now standing at £20,000 up from £7,000 a decade ago. But, no-one knows what the future holds, and allowances could fall.
Read more: How to transfer an ISA
3. Reinvest your dividends
It can be tempting to take any dividends your ISA earns as an income but reinvesting them into your portfolio will have a significant effect on your overall returns as you are compounding the growth.
4. Take some risks
The stock market can be a scary place but don’t stunt your capital growth by being too risk-averse. If you are putting money aside for the long-term – think 10 years or more – then your money has a “far better chance of growth in the stock markets than in a Cash ISA,” said Hargreaves Lansdown.
5. Travel the world
Diversification is the key to building a successful investment portfolio. That doesn’t just mean investing in different asset classes it also means exposing your portfolio to numerous markets around the world.
Emerging markets may be riskier than investments in more developed countries, but they are also economies with more potential for faster growth.
6. Don’t go mad
While a little bit of risk may help your portfolio, grow don’t stick all your money in high-risk investments. You need to be comfortable with the risk, and the potential loss it could result in.
Make sure your whole portfolio reflects your overall attitude to risk.
That could mean spreading your investments across a variety of risk levels.
7. Use an expert
While there are some ISA millionaires who have built their fortunes through investing in individual stocks, most people prefer to use the expertise of a fund manager.
“While tracker funds are an excellent way to get started with the stock market, many of these more experienced investors, with much larger portfolios, have selected a recommended manager who runs a relatively concentrated portfolio,” according to Hargreaves Lansdown.
“That way they have the potential to amplify growth, without necessarily having to become an expert in those stocks themselves.”
8. Don’t chop and change too much
Investing in a long-term process and you need to take a long view. You should certainly keep an eye on your portfolio to make sure its performance is meeting your expectations but don’t constantly trade investments.
Buying and selling constantly will dent your overall growth due to higher transaction costs and you could also miss out on the long-term growth story of a fund or share.
9. Ride out the bad times
The stock market can be a turbulent place but building a large, successful portfolio is all about holding your nerve when the markets are tough. Don’t try to time the market – the chances are you’ll get it wrong.
10. Get the family on board
You might have your own ISAs in hand, but what about the rest of your family? Try to get your spouse or partner to make the most of their ISA allowance too and don’t forget that you can tuck money into Junior ISAs for your children.