Interactive Investor

Nvidia and Scottish Mortgage made me an ISA millionaire, but now I back these funds too

Sam Benstead learns how one ii ISA millionaire made his fortune with bold bets on technology shares.

11th March 2024 09:46

Sam Benstead from interactive investor

The journey to ISA millionaire status for John (not his real name) began early. Now in his 70s, he has strong childhood memories of his father being a “gambler” and into horse racing. He introduced investing to him when he was at school. 

“I was bought two shares – Dunlop and Costain – then went on to study economics, and when I started work I began investing my savings in the stock market rather than in building society accounts.” 

John used the tax-efficient Personal Equity Plan (PEP) and then an ISA to invest in the stock market in a tax-efficient way.  

“I’ve always understood the deferred pay-off from investing and the benefits of shielding returns from dividend and capital gains tax. I’ve hardly ever withdrawn money from ISAs,” he said. 

The investor worked in the economics and statistic department of a government industry and took voluntary redundancy on “good terms” aged 50 when it was nationalised in the 1980s. 

His index-linked pension also began aged 50, so alongside some inherited money, he did not need to return to work and could focus on managing his investment portfolio.  

An early investment in Scottish Mortgage was key to getting him over the £1 million mark in his ISA.  

He put £3,000 into the global trust in 1990, when it was less focused on fast-growing companies. After the trust made James Anderson (who retired in 2022) lead manager in 2000, it pivoted to a more growth-focused investment approach and made early bets on Amazon.com Inc (NASDAQ:AMZN) and Tesla Inc (NASDAQ:TSLA)

At its peak in late 2021, Scottish Mortgage shares traded at about £15. They cost under 50p when John first invested, meaning that his £3,000 stake had grown to nearly £100,000 three years ago, before dropping substantially as interest rates took the shine off growth stocks.   

“I top-sliced it to keep it around £100,000, but the entire stake is worth about £50,000 now. It’s been an amazing return for me, but with lots of swings and roundabouts on the way,” he said. 

Another big winner has been computer chip firm Nvidia, whose processors are used to run artificial intelligence software, as well as computer games and bitcoin mining operations.  

John invested $5,000 (£3,900) five years ago and as of early February 2024 his stake was worth more than $90,000 (£70,200) and he told me that he had not sold any of it yet. Since we spoke, the chip company’s shares have risen by another third, making it a $2 trillion company.  

He has also backed other members of the so-called Magnificent Seven: Apple, Alphabet Inc Class A (NASDAQ:GOOGL) and Microsoft, as well as buying shares in Polar Capital Technology, an investment trust that has large stakes in the biggest tech names.  

“Owning lots of US shares has made a big difference to returns,” John said.  

Long-term UK investments include GSK, Rio Tinto and AstraZeneca.

But not all stocks have been winners. John was caught up in the 2020 craze for vaccine stocks. He paid $30 a share for Novavax. Shares rose to $320, with John taking profits at $280 to cash in his original stake, but the company is now worth just $6 a share. Other biotech shares he invested in have gone to zero.  

“Some fly, some go to zero, especially in biotech sector,” he said.  

Moving to funds 

John has become more risk-averse as he has got older. Now, about 70% of his portfolio is in collectives, including investment trusts and exchange-traded funds (ETFs). He says that most of his individual shares are now large, established companies.  

He inherited some money in 2019, which he is gradually moving into his ISA, and most of it is going into ETFs and trusts. 

Recent purchases include Alliance Trust, Fidelity Asia, Fidelity European and Law Debenture

Long-term positions include BlackRock World Mining trust. “It yields well but has not performed well. This has been a long-term position, so the dividend is substantial now,” he said.  

ETFs he owns include Vanguard trackers VUKE (FTSE 100), VHYL (All World High Dividend) and VFEM (Emerging Markets).  

However, he says that there is too much overlap in his portfolio, particularly of large US technology companies which dominate stock market indices.

“I’ve got 30 to 40 positions overall, and lots of the ETFs overlap due to US tech stock dominance. The portfolio could need pruning and reorganising,” he said.  

The secrets to success 

John estimates that his annualised return over his investment life has been 8%: “That’s high compared to a deposit account at the bank,” he says. However, it’s about what global equities have delivered annually over 40 years.  

The ISA millionaire’s philosophy is to attempt to maintain a balanced portfolio. 

“If something is going down, then something else is going up. It is good to balance things out and diversify and not put all [your] eggs in one basket. Don’t try and time the market and go to cash. 

“My portfolio is well sheltered now due to owning funds, and the dividends are steady as well,” John said.  

The investor has no plans for the large pot due to his pension income. 

“I’m still active but there could be some health expenditure or significant repairs on the house. I’ve made my will already and left [money] to people and educational establishments.” 

He says that he is a natural saver and is not likely to cash out much of the portfolio unless he has to. 

“My generation has had it good with jobs, inheritance, [and] getting on the property ladder. It’s a nice position to be in,” he notes.  

His advice to other investors is to start as soon as possible and invest in funds, where a fund manager can monitor the portfolio. 

“Invest your spare cash in the stock market as the state pension is not going to be much use. You need to take control yourself.” 

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