What an amazing twelve months it has been. And what an amazing month March 2020 was.
March 2020 saw global equities down 25% on peak, just a few weeks earlier. VWRL dropped to £57, a level it hadn’t been at since 2016. That left my ISAs feeling very down in the dumps.
Since March 2020, VWRL has climbed to £83, almost 14% above its previous cycle’s peak. My ISAs are looking very plump indeed.
ISAs grow in three ways.
- The existing ISA investments generate income. In my case the income over the last tax year – just over £24k – was almost identical to the preceding year. All such income, in an ISA, is tax free.
- The existing ISA investments grow/(fall) in value. The preceding year, mine fell by over £50k. But last year they roared upwards – increasing by over £150k. Any capital gains that I realise in an ISA are tax free.
- We top up /(withdraw from) the ISA accounts. I top up to the max – both my ISA and Mrs FvL’s ISA – i.e. the pot increases by £40k each year (out of other savings or taxed income). Until recently, this was the biggest source of growth of my ISA pots. But with the market’s rapid climbs since March 2020, now my ISA is growing by itself more than I can top it up. I think this is the first time that has happened. In the future this should become the norm.
Only six years ago, my total ISA pots amounted to ‘only’ £330k. They have much more than doubled since then, to £795k. The £millionaire status is in sight. But already my ISA pots are worth more than USD$1m.
The Flexible Retirement Planner now suggests the median outcome when I pop my clogs (aged 84, apparently) is £26m (up from £21.3m, last year), in today’s money (simplistically – by setting inflation to 0%). There is a 10% chance my ISA ends up worth more than £65m. This lot assumes my average return is 9.5%, with no inflation; in the real world I have been obtaining over 11% over 8 years, but inflation has been 1-3%, and my 11% figure is probably unsustainable, as this period hasn’t included a sustained market crash.
As I say every year, I don’t expect the ISA tax break to remain unchanged until I am 84. But while it and I last, it is fast becoming the single biggest tax break I benefit from.