In a groundbreaking experiment to demonstrate the power of consistent small-scale investing, I embarked on a year-long journey to test the viability of a $5 daily investment strategy. The results were nothing short of remarkable, yielding a 43.8% return and challenging common misconceptions about wealth building. As Mark Tilbury explains in his YouTube video, small, disciplined investments can lead to significant financial growth over time, disproving the myth that large, immediate investments are the only way to build wealth.
The Investment Strategy Framework
The foundation of this experiment rested on several key requirements for the investment platform. Security stood as the primary concern, with full protection under the Financial Services Compensation Scheme (FSCS) providing coverage up to £85,000 in the UK. Additional essential features included low fees, user-friendly interface, minimal deposit requirements, automated investing capabilities, and access to fractional shares.
For this challenge, Mark selected Trading 212 as the platform of choice, meeting all the specified criteria. The decision to use a tax-advantaged account, specifically a Stocks and Shares ISA in the UK (equivalent to a Roth IRA in the US), proved crucial for maximizing returns by protecting profits from taxation.
Investment Selection and Portfolio Management
Rather than selecting individual stocks, Mark opted for an index fund investment strategy, specifically choosing a Vanguard S&P 500 index fund. This approach provided exposure to hundreds of companies simultaneously, reducing risk through diversification. The selection of an accumulation fund ensured all dividends were automatically reinvested, streamlining the growth process.
When the market is down, your money actually buys more shares because prices are lower. When the market is up, your $5 buys fewer shares because prices are higher.
The Power of Automated Investing
A critical component of the experiment’s success was the implementation of automated daily investments. This strategy, known as dollar-cost averaging, removed emotional decision-making from the equation and provided consistent exposure to market opportunities regardless of price fluctuations.
Monthly Performance Breakdown
The journey wasn’t without its challenges. Here’s how the investment performed over time:
- Month 1: +1.5% return (£2.37 profit)
- Month 2: -0.5% return (£0.79 loss)
- Month 6: +18.2% return (£83.70 profit)
- Month 12: +18.1% return (£161.34 profit)
- Final Results: +43.8% return (£467.03 profit / $576.59)
Key Insights and Lessons
The experiment demonstrated several valuable investing principles. First, consistency trumps timing – the early months showed minimal returns, but patience and persistence led to substantial gains. Second, automated investing removes human emotion from the equation, allowing the strategy to work without interference.
The total investment of £1,505 grew to £1,972, representing a significant return that exceeded typical market performance. While these results are not guaranteed for future investments, they illustrate the potential of disciplined, long-term investing strategies.
This experiment proves that small, consistent investments can indeed lead to meaningful returns. The key lies not in the amount invested but in the consistency of the investment strategy and the power of compound returns over time.
Frequently Asked Questions
Q: What makes index fund investing better than picking individual stocks?
Index fund investing provides instant diversification across hundreds or thousands of companies, reducing the risk associated with individual stock performance. This approach typically offers lower fees and requires less active management than selecting individual stocks.
Q: How important is the choice between a tax-advantaged account and a general investment account?
The choice of account type can significantly impact your returns. Tax-advantaged accounts like ISAs or Roth IRAs protect your investment gains from taxation, allowing you to keep more of your profits and benefit from compound growth.
Q: Why is automated investing considered beneficial for long-term success?
Automated investing removes emotional decision-making from the process and ensures consistent investment regardless of market conditions. This systematic approach helps investors benefit from dollar-cost averaging and reduces the risk of missing important market movements.
Q: Can these results be replicated in the future?
While past performance doesn’t guarantee future results, the principles of consistent investing, proper diversification, and long-term commitment remain sound strategies for building wealth. Market returns will vary, but the fundamental approach of regular, disciplined investing has historically proven effective.