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What Investing of $5 a Day make Change in Your Portfolio

What Investing of $5 a Day make Change in Your Portfolio

One year and eight months ago, I decided to invest $5 every single day into the stock market. The goal is to inspire investing, even if you don’t have a lot of money to invest. Here is your monthly update on my portfolio for August 2023.

I started this challenge back in January 2022, and I wish I had started it earlier because even that small amount of $5 every day can grow into a significant amount of money. Let me share the details with you.

Portfolio Update for August 2023

First, I started by investing my $5 into the S&P 500 fund known as VOO. The price of VOO is currently $410.63. In the past, you had to buy a full share, which required saving up $410. However, now you can buy fractional shares, allowing you to invest with just $5 a day. As of now, I have a total of 7.9 shares with a market value of $3256. My average cost is $378.13, and I have a total return of $259.05, representing a percentage return of 8.64%.

It’s important to focus on the percentage return, especially when dealing with small numbers. As we scale up over time, the portfolio will grow and compound.

Now, not all brokerage apps offer fractional shares, but the one I’m using, Robinhood, does. I have set up a recurring investment, so I don’t have to manually trade every day. The reason it shows $7 instead of $5 is because the market is closed on weekends and major holidays. By investing $7 on weekdays, I make up for those days.

Dollar-cost averaging is a benefit of investing every day or every month. You take advantage of the highs and lows in the market.

Diversifying with Ethereum

In addition to stocks, I also decided to invest $5 a day into Ethereum, a cryptocurrency. Currently, the price of Ethereum has dropped a bit, but I’m not worried about short-term fluctuations. Since January 2022, I have accumulated 1.6 Ethereum, with a value of around $3050. My average cost is $1714, and I have a total return of $211.42, representing a percentage gain of 7.46%.

It’s important to remember that crypto can perform differently from the stock market. There are times when crypto does worse and times when it does better.

Important Warnings

Based on the comments I received in my previous videos, I want to emphasize two critical warnings for the $5 a day challenge.

First, tax-advantaged growth: This challenge is meant to get people used to investing and investing in index funds. However, it doesn’t override the opportunities of retirement accounts like a Roth IRA or a 401k. If your job offers a retirement plan with a match, you should invest there first. Additionally, if you have the opportunity to open a Roth IRA, take advantage of the tax-free growth it offers.

At the end of the year, it is recommended to set up a bulk of your income in a separate account. This allows for a little bit of fun on the side, as well as a learning opportunity about investing. It can also build up a fun little account that could serve you well in the future.

Compound interest is an important concept to understand in the long term. Compound interest refers to the interest that is earned on both the initial deposit and the accumulated interest of an investment. This can lead to significant growth over time.

Let’s look at an example: if you invest $5 a day, which amounts to $1,825 a year, and continue to contribute $152 a month, with an estimated rate of return of 10.5%, over the next 20 years, you would have a balance of $124,000. This shows the power of compound interest.

By consistently investing just $5 a day, you can accumulate a significant amount of money over time. In this example, the interest earned after 20 years is $75,543, which is more than double the amount of money contributed. This demonstrates how compound interest can outpace your initial investments.

It’s important to note that compound interest works best when you leave your money invested for a longer period of time. If you sell or withdraw your investments too soon, you may miss out on potential growth and have to pay taxes on your earnings.

Overall, compound interest is a powerful tool for growing your wealth over time. It’s unfortunate that this concept is not widely taught in schools, but it’s never too late to start investing and taking advantage of compound interest.