Investing in stocks and shares used to be the preserve of the rich, but that’s no longer the case. Over the past few decades, there has been an explosion in the number of companies seeking to help the average person invest their money for the future by making it easier to access the market and reducing costs.
Thanks to these efforts, you can now start investing with just a few pounds a day, which is enough to build a portfolio worth over £274,000 if you keep at it.
Too good to be true?
Saving nearly £300,000 with just £2 a day might seem too good to be true at first, but it really is possible, and it’s all thanks to compounding.
The small contribution of £2 a day works out as £730 a year or roughly £61 a month. If you think you might forget to put away £2 a day, a lump sum of £61 a month put into a regular savings plan will have just the same effect.
It’s what you do with this money when you have saved it that matters. £61 a month isn’t enough to build a diversified portfolio with single shares. You could do it, but even though they have fallen significantly over the past few decades, commissions charged by stockbrokers would eat up a large chunk of this capital. A better strategy is to use investment funds.
The great thing about investment funds is that they give you an instantly diversified portfolio at the click of a button, and fund supermarkets, such as Hargreaves Lansdown, don’t charge anything for buying selling of funds so you can invest as often or as little as you like. There’s also no account opening fee. Instead of commission, Hargreaves Lansdown charges an annual fee to investors, based on a percentage of assets (0.45% at the time of writing although the more you invest, the lower the charge).
Most investment platforms now also offer a monthly investment plan whereby you can set up a direct debit, choose the funds you want to buy, and then get on with your life. In only a few minutes, you can set up an investment plan that could improve your financial position for life.
The easiest investment
The best funds to buy with your monthly contribution are, in my opinion, UK equity tracker funds such as the FTSE 250. An investment in this index will give you the perfect combination of income and growth. Indeed, over the past decade, the FTSE 250 has pushed out a total return of around 9% per annum for investors.
At this rate of return, you only need to put away £2 a day to build a retirement savings pot of £274,000 over the space of four decades. If you are lucky enough to start with a fund of £1,000, £2 a day extra invested at a rate of 9% a year could grow to be worth as much as £308,000 after four decades of saving.
That’s how you can build a savings pot for retirement with minimal effort and just £2 a day, a strategy that can also help you achieve financial independence.