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Written by: Emma Wall | Hargreaves Lansdown
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Highly effective HL investors are more likely to have multiple accounts to take advantage of tax allowances.
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81% of HL millionaires have a S&S ISA
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Over a third of HL’s millionaire investors have an Active Savings account
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They invest in a mix of equities, funds, gilts and ETFs.
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HL millionaires are less likely to have a regular savings set up, preferring to invest with lump sums.
Ever wondered what it takes to build up an investment pot of a million pounds or more? A bit of luck and time in the market certainly play a part, but there are also certain behaviours which mark out those who have hit seven figure status on their savings.
Looking at the habits of HL clients who had built up an investment pot on platform of £1m or more, there are a number of patterns to be found in the analysis. The first is that millionaire investors are far more likely to have multiple accounts than those with smaller pots. 81% of millionaire investors have a stocks and shares ISA, compared to 50% of clients with platform investments below £1m. Similarly, HL millionaire investors are more likely to have a SIPP, a drawdown account and a cash ISA. With the average age of an HL ISA millionaire sitting at 74 years old, having a drawdown account isn’t surprising, plus if they are a hands-on investor, a SIPP gives them the opportunity to access real choice in their pension pot too.
Thanks to recent high interest rates, cash has proved popular with our millionaire investors too, with more than a third of them having an Active Savings account. This group tends to be older investors and, once you have retired, you need more emergency cash to fall back on – covering 1-3 years’ worth of essential expenses, compared to 3-6 months for younger people, so they need more cash holdings. In cases where this means they have more than £85,000, cash platforms like HL’s Active Savings allows them to split it easily between different institutions to meet different needs. Plus, they get FSCS protection on the first £85,000 with each institution and get see everything in one place and manage it more easily.
While setting up a regular savings instruction is a fantastic way to automate investing and mitigating the behavioural risks around timing the market, HL millionaire investors are far less likely to have these set up – most likely because they are past the accumulation phase. Half the number of millionaire investors have a regular savings set up versus those with smaller pots.
Similarly, while reinvesting dividends is a great way to harness the power of compound interest and should be your default while you’re in the accumulation stage of your investment journey - prioritising growth over needing income – HL millionaire investors do not always default to this. Instead, they are more likely to have a mix of instructions set up for different accounts; taking income from some, reinvesting dividends in others and holding money on account where needed. This is likely a result of millionaire clients having multiple accounts where they wish to treat their pots differently as suits the tax wrapper. Having dividend investments gives you flexibility to do different things that suit you and it looks like people are finding tailored solutions to fit their needs.
And now the final juicy question – what is in these million-pound investment pots? A mix of assets is the answer. Equities, funds, ETFs and trackers, gilts and bonds. There is a bias towards single equities and gilts versus those with smaller pots, and they are less likely to have ETFs and passive tracker funds than those with smaller pots.
It’s not wholly surprising to see a greater bias towards individual equities – while it’s generally accepted that investors should reduce within their investment portfolio as they approach retirement, those with greater sums to invest may be more willing to take the risk of investing in individual company shares. This also means HL millionaire investors hold less in cash as a proportion of their portfolios. However, the total amount in cash is probably still greater than other investors because of the size of the portfolio.
Those with the ability to use up their ISA or SIPP allowances will also be looking for other ways to maximise their tax efficiency – by holding gilts, for example. Investors who purchase gilts directly, rather than through a fund, don’t have to pay capital gains tax on any increases in their capital value between purchase and sale or maturity. For some investors, particularly those who pay higher rate tax, this has made low coupon bonds appealing. Coupons paid by gilts are taxed as income. Gilts with a low coupon are appealing because most of their returns come from a capital gain, which is not taxed. This doesn’t matter if you buy the gilt within a tax efficient wrapper such as an ISA or a SIPP, but it does if you invest in other accounts too.”
HL data
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