No, you are not required to invest only in penny stocks.Investors are generally not restricted to a certain kind of stock based on the amount of money they have. A$500 investment is the same no matter how many shares you purchase or how high the share price.
For example, if you were to invest in ABCTUVWXYZ Corporationtrading over-the-counter (OTC) for $0.10 a share, you could hypotheticallybuy 5,000 shares.You could also buyfive shares of Walt Disney (DIS) trading at $100 on the New York Stock Exchange (NYSE). Although there are fewer shares in the second case, the total value of the investment is the same.
Regardless of how much money you have available to invest, it is very important to understand that penny stocks are generally the highest-risk stocks in the market. They may seem attractive since a rise from $0.10 to $0.15 represents a 50% increase, but penny stocks also have a high chance of generating large losses. Below we discuss some lower-risk investing strategies that represent better opportunities to earn a return on your money while learning the ins and outs of investing.
Key Takeaways
- The amount of money an investor has does not restrict them to invest in a certain kind of stock.
- You're not relegated to investing in penny stocks just because you have a small amount to invest.
- Penny stocks are some of the highest-risk stocks in the market; there are other lower-risk investments that could represent a better opportunity, especially for the beginning investor.
- Beginning investors with a small amount to invest often start by investing in blue chip stocks, dividend stocks, and exchange traded funds (ETFs).
- Brokerage commissions and fees can eat away at your returns; an online discount broker can be a good alternative for cost-conscious investors.
Blue Chip Stocks
If you are a new investor, you may want to considerblue-chip companies—such as Apple(AAPL) or Walmart (WMT)—which tend to have long-established track records of operations and trade on exchanges that are closely regulated by the Securities and Exchange Commission (SEC). These characteristics are not found in the over-the-counter marketswhere penny stocks are traded. Although,even if you invest in the big players, trading stocks stillinvolves some level of risk.
Dividend Stocks
Not all stocks pay dividends, but those that do are some of the strongest performers in the market. Companies that pay dividends have substantial amounts of cash and reward their shareholders with regular dividend payouts in the form of cash or additional stock. This extra income is enticing to many investors, along with the fact that many dividend stocks are in defensive sectors that do well even in bear markets.
Exchange Traded Funds (ETFs)
Exchange traded funds (ETFs) are a popular investment option for beginning investors who have only a small amount to invest. Rather than picking individual stocks, ETF investors buy a fund comprised of a basket of securities that trade on an exchange just like stocks.
To get started investing in an ETF, you only need enough money to pay for one share plus commissions and fees. ETFs also offer investors diversification, low expense ratios, and a range of investment choices.
Watch Out forCommissions and Fees
If you want to invest in stocks with relatively little money, it is especially important to take into account trading commissions and the minimum-deposit requirements imposed by some brokerage accounts. Before investing, you might find that it is better to put the $500 into something with fewer fees and restrictions—such as a high-yield savings account—until you can save up more to invest.Consider using an online discount broker, which tends to have the lowest fees (under $10 per trade).
Even with a discount broker, commission fees act as negative returns.So, do try to minimize them as much as possible. For example, if the commission is $10 per trade, after making one trade with your $500, your portfolio will have$490 in market value. In other words, you have already lost 2% on your total investment.Some full-service brokerage firms charge $250 per trade, which would represent a 50% loss, so you would need a 100% gain just to break even.
When you are investing with such a small amount of money, consider limiting the number of different stocks you buy to minimize the commission. If you were to split your $500 into five stocks and the commission is $10 per trade, you would be faced with $50 in fees instead of $10 or $20 if you bought only one or two different stocks. For the truly cost-conscious investor, a low-cost online broker might be the best choice. Many have eliminated trading fees for standard stock trades, although they continue to charge commissions for more advanced trading, such as options.
FAQs
No, you are not required to invest only in penny stocks. Investors are generally not restricted to a certain kind of stock based on the amount of money they have. A $500 investment is the same no matter how many shares you purchase or how high the share price.
Is $500 enough to invest in stocks? ›
Even $500 is more than enough, and it can grow to thousands of dollars if you pick a good investment and give it time. For example, had you invested $500 into the Vanguard Growth ETF (NYSEMKT: VUG) when it was created in 2004, you would have nearly $4,000 today.
Can I buy less than $500 of shares? ›
With CommSec Share Trading, your initial purchase of any particular shareholding must be at least $500 worth of shares, known as a 'minimum marketable parcel of shares'. After your intial purchase has been made, you are able to purchase smaller amounts of shares to top up existing shareholdings.
Can you buy a stock if you don't have enough money? ›
Several new investing apps allow you to buy fractional shares of stock and ETFs. Rather than having to save up $1,000 to buy a single share of a popular technology company, you can buy . 001 shares of the company for $1. This makes it easy to diversify your portfolio of individual stocks.
Why is it risky to buy penny stocks? ›
Potential risks of penny stocks
Lack of liquidity: Penny stocks are often illiquid, meaning it can be difficult to buy or sell your shares quickly without impacting the price. Unprofitable: Many penny stocks represent a stake in a company that has not and will not generate earnings for its shareholders.
Is $500 a month enough to invest? ›
You can become a millionaire by investing $500 per month consistently for almost 30 years. This is a low-effort strategy, but you can achieve this goal even faster through the right combination of individual stocks. Should you invest $1,000 in Vanguard S&P 500 ETF right now?
What is the best investment for $500 dollars? ›
Below are five ways to invest $500—and potentially turn it into much more.
- Certificate of Deposit (CD) CDs are considered low-risk investments. ...
- 401(k) A 401(k) is a common employee benefit. ...
- IRA. ...
- Stocks. ...
- Cryptocurrency.
A stock portfolio focused on dividends can generate $1,000 per month or more in perpetual passive income, Mircea Iosif wrote on Medium. “For example, at a 4% dividend yield, you would need a portfolio worth $300,000.
How many shares should a beginner buy? ›
Most experts tell beginners that if you're going to invest in individual stocks, you should ultimately try to have at least 10 to 15 different stocks in your portfolio to properly diversify your holdings.
What is the cheapest way to buy a single stock? ›
The most inexpensive way to purchase company shares is through a discount broker. A discount broker provides little financial advice, while the more expensive full-service broker provides comprehensive services like advice on stock selections and financial planning.
This could include stocks, bonds or alternative investments, among others.
- Investing In Stocks. To get started, you don't have to spend $500 on one stock. ...
- Investing In Bonds. ...
- High-Yield Savings Account. ...
- Certificate of Deposit (CD)
- Commission-Free ETFs. ...
- Mutual Funds. ...
- An IRA or Roth IRA.
When there are no buyers, you can't sell your shares—you'll be stuck with them until there is some buying interest from other investors. A buyer could pop in a few seconds, or it could take minutes, days, or even weeks in the case of very thinly traded stocks.
Can I day trade with 100 dollars? ›
Can You Start Trading With $100? Yes, you can technically start trading with $100 but it depends on what you are trying to trade and the strategy you are employing. Depending on that, brokerages may ask for a minimum deposit in your account that could be higher than $100.
Does anyone get rich from penny stocks? ›
Yes, you can make money with penny stocks, but you can also make money playing the lottery, though you probably won't. To make money in penny stocks, you have to be able to separate the good companies from the bad, and that means you have to be able to analyze companies.
Are penny stocks a waste of money? ›
Not all penny stocks are scams, but most of them offer no real chance for growth. Many sit idle for years without ever changing in value. A few may gradually appreciate and start trading on the larger stock exchanges, but those are the exception rather than the rule.
What are the best penny stocks right now? ›
Penny Stocks To Buy Today
| Company Name | LTP | % Change |
|---|
| DIL | 8.1 | 0.62 |
| Kanani Industries | 3.6 | -2.70 |
| Dynamic Cables Ltd | 575.05 | -0.68 |
| Hilton Metal Forging | 121.45 | 0.66 |
1 more rowGenerally, experts recommend investing around 10-20% of your income. But the more realistic answer might be whatever amount you can afford. If you're wondering, “how much should I be investing this year?”, the answer is to invest whatever amount you can afford!
What is the ideal amount to invest in stocks? ›
Diversification, or spreading your investment across different stocks or sectors is key to risk management. For effective diversification, you might need a larger amount. For instance, if you're considering a diversified portfolio, you might start with ₹ 10,000 to ₹ 20,000.
How to turn $500 into $10 000? ›
One of the best ways to turn $500 into $10000 is to invest in index funds with Acorns. Index funds are a type of mutual fund that tracks a specific market index, such as the S&P 500. By investing in an index fund, you can diversify your portfolio and reduce your risk.
What is a good amount of money to have in stocks? ›
A common rule of thumb is the 50-30-20 rule, which suggests allocating 50% of your after-tax income to essentials, 30% to discretionary spending and 20% to savings and investments. Within that 20% allocation, the portion designated for stocks depends on your risk tolerance.
