Interactive Investor

Who wants to be a Junior ISA millionaire?

28th February 2022 08:44

Katie Binns from interactive investor

It has taken time, strategy and canny investing to become one of the UK’s 2,000 ISA millionaires. Can the same success be achieved with a Junior ISA?

The UK now boasts 2,000 ISA millionaires - and interactive investor customers make up almost half of them. Research shows the time, strategy and investment return it takes these impressive investors to hit the seven-figure sum. It raises the question of whether a Junior ISA investor can also hit the million-pound jackpot.

Just as with the adult ISA, the length of time it would take to become a Junior ISA millionaire is determined by the amount you can invest and your investment return. 

Game plan for a million quid

Working on the current annual allowance for a Junior ISA (£9,000 for 2021/22), you’d need to put away the maximum £9,000 a year for 18 years and enjoy annual investment returns of 17.15% to hit £1 million by the time your child reaches adulthood. 

If you are in the fortunate position of being able to set aside that amount each year, where might you invest? We take inspiration from the ISA masters: investment trusts. Investment trusts account for a significant portion of the average interactive investor ISA millionaire account.

F&C Investment Trust is one of the oldest trusts, launched in 1868, serving investors through the Great Depression, two World Wars and countless stock market booms and busts. Dzmitry Lipski, Head of Funds Research at interactive investor, explains: “This investment trust is a balanced, global portfolio of quality firms that operate in well-established markets - but there’s also a slice of emerging markets and unquoted companies in the mix. These may be stars of the future – higher risk but with higher potential reward, and potentially big winners for those with a long investment time horizon.”

It has produced a total return of a whopping 258% return in the past 10 years, and 1,631% over 30 years. While the fund has suffered recently as investors move away from growth stocks amid rising interest rates, it’s worth consideration for a junior ISA millionaire wannabe.

Montanaro Better World is a specialist ethical option launched in 2018; it invests in small and mid-cap listed companies that aim to help solve some of the world’s major challenges by supporting the United Nations Sustainable Development Goals. Following a strict three-stage process, the managers establish whether a company is making a good impact, if it’s a good business and if it’s a good investment. 

Not only are its aims worthy but Montanaro Better World has delivered 58% returns in the past three years. Again, it’s worth consideration for anyone with junior ISA millionaire ambitions.

Back in the real world

Maybe one day we’ll see a Junior ISA millionaire. Being more realistic, you don’t have to salt away huge amounts to give a meaningful lump sum to your child when they turn 18.

If you’re in a position to save for your child’s future, a Junior Stocks and Shares ISA gives you an opportunity to start investing and not pay any income tax or capital gains tax on the investment returns.

An 18-year time frame also lets you take some investment risk, because your investments will have the chance to ride out any stock market volatility. It’s potentially a better alternative to stashing your cash in a low-interest savings account that will only see its real value eroded by inflation.

A Junior ISA also offers the added benefit of allowing relatives, godparents and family friends to pitch in on an ad-hoc basis.

Invest a manageable sum regularly to build a meaningful nest egg

If you can put £3,000 a year (the equivalent of £250 a month) into a Junior ISA for 18 years and allow for a modest 3% annual return, your child could be looking at a balance of £72,351 on their 18th birthday.

If the Junior ISA enjoys annual returns of 5%, the balance rises to £88,617. And if it achieves 7% returns, the balance rises to £109,137.

Doing nothing to boost a financial fortune

Sometimes doing nothing is an option. While it’s difficult to imagine a scenario where an 18-year-old won’t need to access their newly rolled-over adult ISA, it’s worth looking at the same figures if a young adult can hold off for a few years. Let’s say they start working full-time, do a paid apprenticeship or manage to work their way through further education.

Even if your child can’t contribute to their ISA, a balance of £72,351 that enjoys annual returns of 3% will be worth £79,060 on their 21st birthday. Meanwhile £88,617 with a 5% annual return would be boosted to £108,560 in the same time frame. And an already robust ISA of £109,137 growing to £133,698 thanks to continued 7% returns would surely be one of the best birthdays a 21-year-old could imagine.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.