Investing is something everyone knows they should be doing. The stock market provides an opportunity to build wealth over time, setting the stage for financial stability leading up to and in your golden years.
When looking at stock ownership in the United States, the numbers are even worse. According to a 2020 Gallup poll, some 45% of Americans don’t own a single stock!
One of the biggest reasons that so many Americans aren’t investing is a widely believed myth that you need a massive amount of money to generate a decent annual return in the stock market.
The fact is that you don’t need much money to build wealth. All you really need is a willingness to start with something and consistently work to increase your wealth through small, monthly investments. In fact, with just $1 per day, you have the ability to step on the road to wealth.
The Secret Power of the Stock Market: Compounding Gains
Think of it this way:
Let’s say you make a short-term investment of $100 and, at the end, you cash in at $110. You saw profit from your investment, so you do it again. Only this time, you have $110 to invest and achieve the same 10% return. By reinvesting your profits, you take advantage of compounding gains, generating $11 in profit rather than $10. Now, you have a total of $121 to invest.
If you were to continually reinvest your profits, the amount of money made on each single investment would slowly increase. Over the course of several years, the difference in return will grow to be quite substantial, even though the original investment amount never changed and the only funds added to the investment were returns from previous investments.
The bottom line is that if you’re looking for wealth-building opportunities, few are quite as powerful as the compounding gains that can be achieved in the stock market.
What $1 per Day Turns Into After 30 Years
$1 per day is a small amount of money. To put it into perspective, according to Acorns, the average American spends $1,100 per year on coffee. That works out to $92 per month, or around $3 per day.
Considering that it only costs $0.27 to make a cup of coffee at home according to Coffee Detective, $1 per day shouldn’t be hard to come by. You could enjoy a few cups of coffee every day if you make it yourself, and if you’re like the average American coffee drinker, likely save $2 per day.
While $1 per day isn’t a lot of money, you would be surprised at what $1 per day would become in an investment account over the course of 30 years. With 365 days in a year, investing $1 per day for 30 years would result in a total principal investment of $10,950. But, the stock market isn’t a savings account; it employs compound gains as a wealth-building tactic.
If you were to earn an average annual return rate of 10%, your $1 per day would grow to become about $57,800 after 30 years. That means that by putting just $1 per day in the stock market, your profit on $10,950 would be a whopping $46,850. Sure, $46,850 isn’t going to build a strong retirement account by itself, but following a plan of starting small and growing your investments will.
Set Goals to Increase Your Daily Investing Budget by $0.50 per Year
Younger investors typically have less money to invest — that’s just life. When you’re young, you’re finding your way to your career, and making small amounts of money in the process. However, as you age, you will begin to refine your skills, become more valuable to the company you work for — or build your own company — and begin to make more money.
As a result, it’s wise to start small and grow your investments in the stock market as your income grows in order to build wealth. A great method to do this is to slowly raise the amount of money you invest daily. Every year, increase the daily investment amount by $0.50. In the first year, invest $1 per day, followed by $1.50 per day in the second year, $2 per day in the third year, $2.50 per day in the fourth year, and so on. In doing so, you will begin to build a meaningful investment account.
If you follow this strategy and earn average market returns for 30 years, here’s what your portfolio would look like at each stage:
|Year||Amount Invested Per Day||Ending Balance|
With the retirement savings built through this plan, you could end up with a nest egg that provides you with monthly payments of $2,059 per month over the course of 20 years. That’s a healthy addition to any retirement income you generate from pensions, Social Security, 401(k)s, individual retirement accounts (IRAs), and other sources.
The Stock Market Is More Small-Fish Friendly Than Ever Before
The days of small savers being forced to invest in savings accounts making measly returns even with compound interest are a thing of the past. This is largely the result of technological innovation making it possible for small fish to swim in the sea that is the stock market.
Years ago, if you wanted to invest, you had to open a brokerage account with a traditional broker, which generally came with hefty fees and minimum balance requirements. These days, if you want access to stocks, exchange-traded funds (ETFs), mutual funds, or any other financial asset on the stock market, all you need to do is hop online, log into your favorite discount brokerage account, and place an order.
Ultimately, there are three main factors that have made investing in the stock market accessible for the small fish trying to swim among the sharks:
1. Information Is Available at Your Fingertips
Prior to the availability of today’s online brokers, if you wanted access to the stock market, you had to gain it through traditional brokers. Today, there are several options, including Robinhood, Acorns, WeBull, and several others that make investing possible regardless of the amount of money you have available to make an initial deposit into your brokerage account.
All you need to do to access the market is sign up for a discount online broker, connect your bank account, and make a small deposit — even as small as $1.
2. Discount Brokers Make Investing Inexpensive
Traditional brokers came with many hurdles. Not only did the average person not have enough money to open an account, but commissions on traders were often so high that they took a big bite out of any potential profits the investor made.
That’s no longer the case.
Today, there’s a trend sweeping the online discount broker industry where brokers are beginning to allow investors to make commission-free trades. This means that when you make an investment in the stock market or sell your position, you only pay regulatory fees, which work out to be a fraction of a penny per share. As a result, the average investor now has access to individual stocks, index funds, ETFs, and other financial instruments without having to pay high commissions that tap into their potential profits.
3. Fractional Shares Give Small Fish Access to Stock Market Shark Food
Another major issue of the stock market of the past was that if you wanted access to highly reputable companies, you had to pay high per-share prices. For example, a single share of Amazon.com stock trades with a price tag of well over $3,000 — about the amount of money the average American has in total savings.
These high prices hindered investments from the average American, but that’s all changing. These days, many online brokerage accounts give their investors the ability to buy fractional shares of stock. That means that instead of buying stock on a per-share basis, you buy it on a dollar-cost basis.
So, if you want to buy $10 worth of Amazon.com stock, you simply place the order and will be given ownership of a fractional share of the company upon completion. As a result, your fractional share will provide you with exposure to the growth Amazon.com has to offer and entitle you to proportional voting rights and dividend payments.
Not only do fractional shares allow access to stocks that many investors wouldn’t have had, but they also allow for an investment strategy that centers around diversification, regardless of the amount of money you have to invest.
Tools to Help You Start Investing
Now that you know how large of an impact $1 per day can have on your retirement account, you’re more likely to start investing soon. However, investing isn’t something you learn in grade school, and many people simply don’t know where to start.
Before making your own investments, it’s best to do your research and get an understanding of how the market works, investing strategies, and how to be successful as an investor, but that shouldn’t stop you from being able to watch your net worth grow immediately.
There are several tools that you can use to gain access to the market immediately and allow the experts to take control as you do your research. Some of the best options for beginners include:
- Personal Capital. Personal Capital is an all-inclusive personal finance platform. The platform is designed to help consumers build wealth through budgeting, saving, setting aside for an emergency fund, controlling high-interest-rate credit cards and other debts, and taking advantage of the power of compound gains the stock market has to offer.
- Betterment. Betterment is a robo-advisor that gives you access to the market. The sole goal of the platform is to focus on investing. All you have to do is deposit funds and the platform will do the work for you with a heavily diversified portfolio including asset classes like ETFs and bonds. While Betterment isn’t the only robo-advisor online today, the platform is known for providing a compelling rate of return regardless of whether you have a lot of money to start with.
- Charles Schwab. Charles Schwab is one of the most trusted investment brokerages on Wall Street. Although the company offers discount brokerage services, it also offers Schwab Intelligent Portfolios, an automated, highly diversified investing product much like Betterment’s. The major difference is that you don’t just get the robo-advisor with Schwab; you also have access to human financial advisors when you need them.
The idea that you have to have a lot of money to make a meaningful impact on your future is a myth that holds many back from investing to build wealth, financial stability, and a comfortable retirement.
The truth is that you can start building wealth and preparing for your future with as little as $1 per day. Sure, it’s unlikely that you’ll find your way to a retirement account with $1 million in it with a $1 per day investment, but starting small and growing as your financial position allows will put you on the path toward financial freedom.
As is always the case, when you decide to start investing, make sure that you do your research and make educated investment decisions.