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Thanks to the growth of online trading platforms, you don’t need mountains of cash to start investing today. Many brokers have no minimum investment requirements, making it accessible to a broader range of people looking to build a second income.
Additionally, commission-free trading has further reduced barriers for beginners. Therefore, allocating just £10 a day to UK shares could work wonders over a long enough period.
We can thank compound interest for this. That’s the wealth-building force that physicist Albert Einstein purportedly called the “eighth wonder of the world”.
Basically, the longer I invest, the more compounding snowballs, even with just a tenner a day fueling it.
The right set-up
Now, I wouldn’t literally invest £10 a day unless my broker offers commission-free trading. That’s because trading fees would make this unviable. But £10 a day works out at about £304 a month. So I could hit the Buy button every time I got to this mark.
Either way, the vehicle I’d use is a Stocks and Shares ISA, which would shield my gains from taxes. And I’d find a platform that offers loads of investing options without also having my to keep eyes out for high fees.
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.
Mining the future
One stock I’d consider buying is BlackRock World Mining Trust (LSE: BRWM). As the name indicates, it invests in global mining stocks with a portfolio containing industry giants like Glencore, Rio Tinto, and BHP Group.
These firms are set to play a crucial role mining the materials (particularly copper and nickel) needed for the green revolution.
However, this sector is inherently cyclical, meaning the shares can take a beating when global macroeconomic factors (especially relating to China) dent investor sentiment.
But I like that the trust’s managers have vast experience navigating these risks. They also have a keen eye for lucrative trends. For example, having a heavy allocation to gold — around 20% of net asset value (NAV) — now looks like a smart decision, with the yellow metal now at a record high.
Also, the trust looks like a bargain, trading at a 10% discount to NAV. The dividend yield is 6.3%.
Keep in mind that both payouts and stable returns aren’t guaranteed. That’s why I’d build a multi-stock portfolio across different sectors to mitigate the risks of dividend cuts and underperforming shares.
Miracle of compounding
A compound interest calculator shows that investing £10 a day (the equivalent of £3,650 a year) would grow to £57,710 after 10 years. This assumes I earn an average annual return of 9% and reinvest my dividends.
After 30 years, my ISA portfolio would be valued at £517,761. By this point, I could stop reinvesting dividends and enjoy the fruits of my labour with an annual second income of £36,243 from a 7%-yielding portfolio.
To put this in context, if I were in my 20s or early 30s, I could invest just £10 a day and reach this figure well before pension age.
Foolish takeaway
Better still, these figures could prove to be conservative (although they could also be over-optimistic). In reality, my investing skills should ideally improve (better returns) along with my earnings potential (more money to invest).
If my contributions were to eventually average out at £25 a day, then my portfolio’s value could reach nearly £1.3m after 30 years!
