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If you saved just $5 a day by skipping your daily Starbucks, cutting back on pricey Uber Eats, or resisting the temptation to buy new Fortnite skins, and instead invested it with an average annual return of 10% in 45 years, you'd have nearly 1.6 million dollars. I've shared this idea before, and while many people are amazed at how saving a small amount every day can grow into a fortune, there's always three common hate comments I get. The first is, "I don't want to save. I want to enjoy my money while I'm young." The second, "I don't want to be a millionaire when I'm old and gray like you. I want it now." And the third, "What kind of investment actually gives me these returns over the
long term?" After hearing these doubts time and time again, I thought, "Why not put it to the test once and for all?" That's why I'm kicking off a year-long challenge to show you that investing $5 a day doesn't have to feel like a sacrifice and can lead to real, measurable returns. First, I'll walk you through exactly how I'm setting up my investments. Then, we'll fast forward to reveal my results one year later. Yes, by the time you're watching this video, a whole year will have passed. So, hopefully, everything went to plan. Before we start, remember I'm not a financial advisor. I'm just sharing the knowledge that has allowed me to become a millionaire investor. Right, so step
one is to find a platform. For this investing challenge, I've got a few non-negotiables when it comes to what I'm looking for in a platform. And if you ever want to do something like this yourself, these are the things you'll want to keep in mind, too. Let's break them down. The first thing, of course, is low fees, because you don't want your potential profits eaten up by unnecessary charges. The next thing is a beginner-friendly interface. Although I'm confident with complicated investing terms, I know most beginners that want to try out this challenge will be put off if it looks too confusing. So, we need something that's simple to understand. Security is such an important one. What's the point of
investing if my money isn't safe? So, I'll need a platform that is fully protected by the Financial Services Compensation Scheme. This compensates you for up to 85,000 pounds in the UK in case something happens to the platform. However, bear in mind this protection doesn't protect you from investment losses. We also need a platform that accepts pretty low minimum deposits because this is, of course, a $5 a day challenge. Next, we need some kind of automatic investing feature as there's no way I'm going to be remembering to invest $5 every single day without automating it.
You might be better at remembering than me, but my boomer brain is getting pretty old. Finally, we'll need access to fractional shares. This will allow us to invest in high-priced stocks without needing to fork out hundreds of dollars to buy an entire share up front. For example, Apple is, as of August 2023, trading at around $178 per share, which clearly doesn't work with our $5 a day budget. But with fractional shares, we can invest any amount we want no matter how small. There are other features you might prioritize. However, these things are my non-negotiables. Now, if you're doing this challenge, too, feel free to use whatever platform has these features.
I've used a lot of investing platforms in my lifetime, and one of my favorites is Trading 212 as it ticks all of these boxes. So, that's the platform I'm going to be using for this challenge. Right, let's move on to step two, which is to open and fund an account. When it comes to this step, there's one key decision that many people overlook, a decision that can make or break your long-term results. And if you're taking on the $5 a day challenge like I am, this choice becomes even more critical. This is because the type of account you choose will determine how much of your profits you actually end up keeping. Let me explain. There are two main types of accounts we need to consider. For now,
let's call them account A and account B. Now, let's imagine we've got $2,000 to invest. We'll split it equally between both boxes. So, $1,000 goes into account A and $1,000 goes into account B. At first, everything looks the same. Both accounts have the same amount of money invested, but here's where things start to change. When you use account A, your profits aren't entirely yours to keep, and that's because of the dreaded taxman. First, he takes a slice of your dividend earnings. Dividends are like a reward companies give their shareholders. Now, not all companies pay them, but many do. How much the taxman takes depends on your income and tax bracket. So, the more you earn, the bigger the slice he
takes. Next, he takes even more for capital gains tax. This happens when you sell an investment for more than you paid for it. In the UK, capital gains tax is typically 10 to 20%. In the US, long-term capital gains tax rates range from naught to 20% based on your income level. Now, what about the money in account B? Well, this account has special protections that stop the taxman from reaching in and taking your profits. Everything you make here is yours to keep. That's because account B is known as a tax advantaged account. Meanwhile, account A is just a general investing account. In my humble opinion, you shouldn't even be looking at a general investing account until you've fully taken advantage of everything a
tax advantage account has to offer. So, how do you do that? Well, it depends on where you live. In the UK, our tax advantage accounts are called stocks and shares ISAs, and in the US, they're known as Roth IRAs. Both of these special accounts come with incredible tax benefits, but there are a few things to keep in mind. In the UK, you can contribute up to 20,000 pounds per year into an ISA. In the US, Roth IRA contributions are capped at $6,500 each year, or $7,500 if you're over 50. For most people, these limits are plenty, allowing you to build your future while still covering living expenses. The ISA allows you to withdraw money at any time tax-free, which makes it very flexible. So, while
a general investment account isn't necessarily a bad option, it often falls short when it comes to maximizing your money. Of course, if a tax advantage account isn't available where you live, you'll have no other choice but to use option A, a general investment account. I'm going to use option B, a stocks and shares ISA, because when we pull the money out of this box at the end of the year, we want to keep as much as possible. As I mentioned earlier, I use Trading 212 all the time and already have an account, but for this challenge, I wanted to show you the process of starting fresh. That's why I've asked my son Curtis to step in and take on the challenge using his account. If you also
want to set up an account and join in with the challenge, just head over to their website or download their app from the App Store. The setup process is pretty straightforward. The only part you might need a bit of clarification on is choosing the right account type. You'll be met with four options like this. At the top is a general investment account we spoke about earlier. Underneath is a CFD account for short-term trading, which we don't need to worry about. At the bottom is the cash ISA, and right here is the stocks ISA. This is the account I'd open if I were you. Now, assuming you've set up
your account, head over to this tab and select use promo code and enter t i l b u r y Tilbury, and you'll get a free fractional share worth up to £100 when you fund your account. Now, I know this sounds too good to be true, but they're offering this because I reached out to them to see if they'd be interested in sponsoring this portion of the video, and they agreed. So, next, let's fund the account. Click this button here. You'll see a few options including instant bank transfer, normal bank transfer, card, or Google Pay. If you're using the iPhone app, I believe you'll also have the option of Apple Pay as well. I'm going to go with instant bank
transfer and deposit £35 from my son's bank account, as that will cover us enough to invest £5 a day for the next 7 days. Now, you don't need to deposit for an entire week head in one go. This is just the way I'm choosing to do it. And yes, I know the title says $5 a day, but I'm in the UK, so I'm putting £5 in, which is actually just a little bit more. The most common mistake I see people make when investing is assuming that once I put some money into an account like this, their money will automatically start to grow. Let me make one thing very clear. This box only protects your money from tax. It doesn't actually invest it for you. That's why step three is to pick some investments.
This is all about deciding what actually goes into the box. So, we could fill it with individual stocks like Amazon, Meta, Apple, Tesla, and Nvidia. But, to be honest, while these are great companies, putting all your money into a handful of individual stocks can be really risky. If one of these companies doesn't perform well, it could drag down your entire portfolio. That's because your money is tied up in just a few companies, and that increases your risk. That's why for this challenge, I'm using a different strategy. And you might have guessed it already. It's called index fund investing. This will give us exposure to loads of different companies without all the stress of picking individual stocks and praying for a winner.
Index funds can hold shares from hundreds, sometimes even thousands of different companies at once. This makes it easy to invest in a whole bunch of companies all at the same time, making your portfolio more diversified. Now, here's the best part. What makes this even more powerful is that it's going right inside my tax-advantaged account. So, not only do I get the benefits of diversification and low cost, but I also get to avoid paying taxes on dividends or capital gains while it grows. This is perfect for my $5 per day challenge. Of course, it's important to remember that stocks can go up as well as down, and your capital is always at risk when investing. However, if you choose to
invest in an index fund like the S&P 500, which tracks the performance of the top publicly traded companies in the United States, it's worth noting that historically, no one has lost money when they've bought and held for over 20 years. Past performance isn't a guarantee of future results, but long-term investing in diversified funds like this can help reduce risk compared to individual stocks. Let's head over to Trading 212 and set this up. To the left, you can see this option to create a pie. Once you click it, it gives you some different options like copying model pies, looking at other people's pies in the community, and creating your own custom pie. A pie is just a fancy way of
showing you how your investments are divided between different stocks. For example, if you had $100 and split it equally between four individual stocks, your pie would have four equal slices of 25% each. We're going to go with the custom pie option and click add instruments. I'm going to search for a simple Vanguard S&P 500 Index Fund. As you can see, there are a couple of different options. One has ACC in brackets, and that stands for accumulation, meaning that all your dividends are reinvested back into your investments. The other option looks the same, but has DIST in brackets at the end, which is short for distribution.
This second option means that you're given a dividend rather than them being automatically reinvested into your account. So, for me, I want this challenge to be as easy as possible, so I'll be choosing the accumulation one. Now, I'm going to click add to pie. All right, so we've got our account set up and decided what to invest in, but here comes the tedious part. Invest in a fiver every single day. Honestly, I think a lot of the hate towards this challenge comes from people imagining the effort it takes to do this every day. But, the truth is, it really doesn't have to be that hard. That's why step four is to set up auto investing. Now, this feature isn't just great for the $5
challenge, it's essential for any investor, no matter how much you're putting in. This is because it takes your emotions out of investing and leverages the power of dollar cost averaging. Let me explain. The reality of the stock market is that it's completely unpredictable. It doesn't just move in one direction. Sometimes the market will be going up, other days it'll be moving sideways, and then there are times it'll be going down. When the market is down, your money actually buys more shares because prices are lower. For example, my $5 stretches further, let me pick up more shares at a discount. And when the market is up, my $5 buys fewer shares because prices are higher. The idea is that over time,
these ups and downs balance each other out, which is the magic of dollar cost averaging. It's been such a reliable and stress-free strategy for me because it takes the pressure off trying to time the market perfectly. For this challenge, I'll be using this exact strategy by investing the same amount every single day. And if you don't want to do it daily, you can invest monthly and still see the same results. It's entirely up to you. Let's go back to Trading 212 and click next. This then gives us the option to either choose to invest manually or use the auto-invest feature. We're, of course, going to select auto-invest and then click next.
Now, we have these three sliders we can play around with. The first one is our initial deposit. This is the money we're going to be investing right away. So, I'm going to set this to £5. Next, we have the investment frequency. As you can see, you can do this every two months, monthly, every two weeks, weekly, but we're going to select the daily option and press update, and then we're going to change this to £5, too. Finally, let's set the years to one. And as you can see, there's a cool value projection graph at the top, which shows us what we can expect to make in a year based on historical data. £1.97 may not seem super impressive when we're
going to be putting in 1.8k, but if you move that slider all the way to 40 years, look how compound interest takes over. This value projection says our little £5 a day investment could be worth 5.52 million from an investment of only 73,000 pounds. Of course, this is all estimations and if I were you, I'd take this with a grain of salt as no one knows what the market is going to do long-term. However, playing around with these compound interest value projections is very motivational. So, let's bring it back to 1 year and click next. Now, we get the chance to name our investment. So, I'm going to call it coffee a day and then click next. Now, it's
time to fund the pie. So, let's click this and as we've already funded the Trading 212 account, we can choose the free funds option. This isn't free money. It just takes cash from your balance on Trading 212. So, as long as we top this account up every now and again, then the daily investment should go through. Then, I just need to press confirm and boom. That's all set up. So, a year from now, hope I'm still alive, I'll catch up with you. Right, it's time to check out the results. I know I'm about 5 months late on this. That's how good the auto invest feature is. You just forget it's investing in the background. But trust me, the results are worth the wait.
They're really interesting. I started this challenge back in August 2023 and after the first month, I was up £2 and 37 pence, which was a 1.5% return. Not bad, but then September came along and things didn't go quite so well. I was actually sitting at a loss of 79 pence, which was a minus 0.5% return. This right here is why so many people give up on investing. In the first 2 months, I had almost nothing to show for my consistency. It's no wonder people decide to pull their money out when they don't see immediate results. So, I was
determined to stick with my dollar cost averaging strategy, and I'm so glad I did because things really started to turn around. Fast forward 6 months, and I was up £83 and 70p, which is an 18.2% return. Not too shabby. And then by 12 months, I'd made £161 and 34p in profit with an 18.1% return. That's where the auto investing feature stopped, but I've continued tracking the growth since then. Now, let's jump to the day. This is where it gets a little bit crazy. In total, I've invested £1,505, but my investment is now sitting at £1,972. That means I've made a profit of £467 and 3p, which we can convert to dollars, and
that works out at $576.59, which is a staggering 43.8% rate of return. Now, this is proof that time in the market beats timing the market. If I'd panicked and pulled my money out after losing some in the second month, or stopped the challenge altogether, I'd never have reached this point. Even I couldn't have dreamt of results like this. It's down to the wild year the stock market has had. However, it's important to note that these results are not typical, and past performance doesn't guarantee future results. I'm thinking about continuing this challenge long-term just to see how much it could grow. If that's something you'd like to see, let me know in the comments, and I'll make another update
video in the future. If you want to learn more about how I pick my stocks, then I'm going to leave that video right up there, but don't click on it just yet. Make sure to subscribe if you want to grow your wealth, okay? I'll see you over there.
