How to become an ISA millionaire

To get to £1 million as fast as possible, the first step is to invest the maximum each year. The most you can invest in an ISA in any given tax year is £20,000. If you started saving today and the ISA limit remained at £20,000, it would take you 25 years to become an ISA millionaire, assuming an average annual return of 5%.

As well as the level of contributions it’s the investments you hold within an ISA, and how they perform, that are the main drivers that will determine whether you can one day achieve ISA millionaire status.

The smart choice for any long-term investor is to have a well-diversified portfolio. The classical argument for a diversified portfolio is that it enjoys reduced volatility because when one of your investments isn’t performing so well, another will hopefully be performing strongly. By spreading your money across a range of investments, giving you exposure to different geographical regions, industries and asset classes – such as shares and bonds – you can spread your money far and wide.

An easy way to build a well-diversified portfolio is to invest in a range of funds, rather than buying shares in individual companies. A single fund will often invest in between 25 – 100 companies so you can see how that helps spread your money and gives you a level of immediate diversification.

The next key part of your strategy could be to invest early in the tax year. It means you will have up to an additional year in the market, which will also help power portfolios in a rising market, as more of your assets are invested for longer.

For those who don’t have a lump sum to invest every April, there’s the perhaps more common way of investing, which is to do so each month.

As you'll be drip-feeding money in gradually, in some months, when the market has risen the amount you're investing will buy you fewer shares.

But when the market has fallen, the same amount will buy you more shares. This so-called ‘Pound Cost Averaging’ can help smooth out stock market volatility.

Leaving your ISA untouched and reinvesting returns is crucial to growing your wealth. This is because through the magic of compounding your investments can grow faster – so long as you have plenty of time on your side.

In simple terms, when you invest your money it will hopefully increase in value and you’ll earn a positive return most years. Assuming it does, after the first year, both the original capital and the return will benefit from any further returns in the second year. In the third year your investment is further enhanced by any returns achieved, and so on.

This snowball effect is known as compounding. It's the earliest ISA contributions that have the opportunity to benefit most from compound growth over time.