£10 a day invested in UK shares could create a second income of £36,243 a year!

Investing just the equivalent of a tenner a day in UK stocks could secure an attractive high-yield second income over the long run.

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The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

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Thanks to the growth of online trading platforms, you don’t need mountains of cash to start investing today. Many brokers have no minimum investment requirements, making it accessible to a broader range of people looking to build a second income.

Additionally, commission-free trading has further reduced barriers for beginners. Therefore, allocating just £10 a day to UK shares could work wonders over a long enough period.

We can thank compound interest for this. That’s the wealth-building force that physicist Albert Einstein purportedly called the “eighth wonder of the world”.

Basically, the longer I invest, the more compounding snowballs, even with just a tenner a day fueling it.

The right set-up

Now, I wouldn’t literally invest £10 a day unless my broker offers commission-free trading. That’s because trading fees would make this unviable. But £10 a day works out at about £304 a month. So I could hit the Buy button every time I got to this mark.

Either way, the vehicle I’d use is a Stocks and Shares ISA, which would shield my gains from taxes. And I’d find a platform that offers loads of investing options without also having my to keep eyes out for high fees.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

Mining the future

One stock I’d consider buying is BlackRock World Mining Trust (LSE: BRWM). As the name indicates, it invests in global mining stocks with a portfolio containing industry giants like Glencore, Rio Tinto, and BHP Group.

These firms are set to play a crucial role mining the materials (particularly copper and nickel) needed for the green revolution.

However, this sector is inherently cyclical, meaning the shares can take a beating when global macroeconomic factors (especially relating to China) dent investor sentiment.

But I like that the trust’s managers have vast experience navigating these risks. They also have a keen eye for lucrative trends. For example, having a heavy allocation to gold — around 20% of net asset value (NAV) — now looks like a smart decision, with the yellow metal now at a record high.

Also, the trust looks like a bargain, trading at a 10% discount to NAV. The dividend yield is 6.3%.

Keep in mind that both payouts and stable returns aren’t guaranteed. That’s why I’d build a multi-stock portfolio across different sectors to mitigate the risks of dividend cuts and underperforming shares.

Miracle of compounding

A compound interest calculator shows that investing £10 a day (the equivalent of £3,650 a year) would grow to £57,710 after 10 years. This assumes I earn an average annual return of 9% and reinvest my dividends.

After 30 years, my ISA portfolio would be valued at £517,761. By this point, I could stop reinvesting dividends and enjoy the fruits of my labour with an annual second income of £36,243 from a 7%-yielding portfolio.

To put this in context, if I were in my 20s or early 30s, I could invest just £10 a day and reach this figure well before pension age.

Foolish takeaway

Better still, these figures could prove to be conservative (although they could also be over-optimistic). In reality, my investing skills should ideally improve (better returns) along with my earnings potential (more money to invest).

If my contributions were to eventually average out at £25 a day, then my portfolio’s value could reach nearly £1.3m after 30 years!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Ben McPoland has positions in BlackRock World Mining Trust Plc. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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