Discover 3 habits that ISA millionaires use to aim for passive income

Passive income remains a hot topic for investors aiming to secure financial stability with minimal daily effort.

One of the key insights from studying successful investors, especially those with seven-figure Stocks and Shares ISAs, is that they follow clear habits that consistently build wealth over time.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Focus on stocks

British ISA millionaires typically have around 87% of their investments in stocks, including investment trusts. This is a deliberate choice, as shares offer better long-term growth and income prospects compared to cash or commodities.

The heavy weighting in stocks shows their confidence in businesses to grow and reward shareholders through dividends and capital appreciation. The discipline to stick with stocks through market ups and downs has been crucial to their success.​

Defensive moats

Research reveals that ISA millionaires predominantly choose companies with defensive moats — businesses with strong competitive advantages that protect their profits.

Examples such as GSK, Unilever and BP come up frequently. These companies often operate in essential sectors like healthcare, consumer goods and energy, where demand tends to be stable even in tough economic times.

The presence of strong brands, patents, or regulatory barriers affords them consistent cash flows and dividend reliability, essential for passive income investors.​

Invest early and consistently

It’s hardly surprising that most ISA millionaires started young, giving their money time to grow through compounding. But for those who haven’t yet started, the important takeaway is that it’s never too late to begin.

Consistency, above all, is key. Regular monthly contributions help to smooth out market volatility, and reinvesting dividends fuels portfolio growth exponentially. This patient, disciplined approach separates the winners from casual investors who seek quick gains.​

A popular starter stock

For beginners looking to kickstart an ISA, Lloyds Banking Group’s (LSE: LLOY) a stock worth considering. Year to date, Lloyds shares have risen by about 57%, supported by a yield near 6%, making it attractive to income-focused investors. Over the past 11 years, it’s consistently paid dividends, showing resilience amid sector challenges.

The bank’s interim 2025 results show solid progress despite challenges. It reported profit after tax of £778m in Q3, hampered by a £800m provision relating to the motor finance mis-selling scandal. Net interest income rose steadily, and the bank remains focused on cost discipline and capital strength — crucial factors supporting dividend payouts.

One risk investors should weigh is Lloyds’ high level of debt combined with a competitive banking sector undergoing regulatory scrutiny. The investigation into motor finance practices still poses reputational and financial risk. 

These risks could impact profits and dividend sustainability, but the bank’s management has stressed its commitment to maintaining a progressive and sustainable dividend policy.​

The patience game

Passive income through an ISA isn’t about chasing fads or hitting quick wins. It boils down to tried-and-true habits: favouring stocks, especially those with protective moats; starting early and maintaining consistent investing discipline; and patiently reinvesting dividends to harness compounding.

Stocks like Lloyds exemplify the mix of income potential and risks investors need to balance in pursuit of long-term financial independence. While not without challenges, such companies often form the backbone of portfolios built for steady passive income.

Successful ISA investors know it’s a marathon, not a sprint. Anyone seeking to build tax-efficient, reliable passive income gains can learn plenty from these habits and the companies that support them.

The post Discover 3 habits that ISA millionaires use to aim for passive income appeared first on The Motley Fool UK.

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Mark Hartley has positions in Bp P.l.c., GSK, Lloyds Banking Group Plc, and Unilever. The Motley Fool UK has recommended GSK, Lloyds Banking Group Plc, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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