£10 a day invested in UK shares can one day generate a secondary income of over £3,000 a month!

Ten years ago, earning a second income by investing in the stock market was considered a hustle for the rich.

These days, all you need is a smartphone and less than £10 (or less) a day. Of course, Wall Street is still talking big game, throwing around the word ‘billion’ as if it were a small change. But in reality, profitable investment opportunities are no longer the preserve of fat cats.

So how can a young guy (or girl) earn a tidy little extra cash in this day and age?

Choose a quality share

Since this is a long-term strategy, I would choose stocks of well-established companies with a track record of reliable performance. In other words, the opposite of dynamic artificial intelligence (AI) technology stocks or speculative assets like crypto. I speak Tesco, Unilever or GSKbusinesses that people use every day and will likely continue to do so.

Take it Aviva (LSE: AV.), for example. As the UK’s largest insurer, it is well established with a market-cap of £12bn and £18.5bn of revenue last year.

It paid a dividend of 7.5% and a dividend of 5%. Over the past four years, the share price has grown by 48.8%, with an annualized return of 10.4% per year.

However, it may change. In 2022, the stock fell 40% only to rise 47% the following year. In addition, it faces another risk. The UK insurance industry is very competitive, with Prudential, Phoenix Group again Legal & General it all boils down to market share. If an aggressive competitor lowers premiums to attract customers, Aviva may need to sacrifice profits or risk losses.

Overall, it enjoys stable growth and has a good track record of paying dividends. So I would say that it is a decent option to consider for an income portfolio.

To reduce costs

Scraping together an extra tenner a day should be easy enough. When I lived in London we used to joke that as soon as you walked out your front door, £50 was gone (usually more!).

Staying just one night a week can make the difference between building a second income or living paycheck to paycheck.

Another way to reduce costs is to reduce tax obligations. UK residents can do this by investing in a stocks and shares ISA. This allows up to £20,000 a year to be invested with tax breaks on capital gains.

Please note that tax treatment depends on the individual circumstances of each client and may change in the future. The content of this article is provided for informational purposes only. It is not intended to be, and does not constitute, any form of tax advice. Students are responsible for conducting their own due diligence and obtaining professional advice before making any investment decisions.

Consolidated returns

Ten pounds a day is £3,650 a year – not exactly life-changing savings. But with dividend investing and the miracle of compounding returns, it is possible.

Consider a well-constructed portfolio that returns 6% per year, just over FTSE 100 average. By focusing on high yield stocks, the same portfolio could aim for an additional 5% return on dividends.

By putting £10 a day into that portfolio and reinvesting the returns over 20 years, the pot could grow to £266,830. If the average yield is taken, it would pay out £12,000 a year. At that point, I could start withdrawing my dividends with a second profit of £1,000 a month.

But if I continue for another 10 years, the pot could reach a whopping £825,430. What about assignments? £37,680 a year, or over £3,000 a month!