Are penny stocks worth it?

Are penny stocks worth it?

Penny stocks are usually not worth investing your money in. Traditionally, penny stocks are losing money and on their way to bankruptcy. Most individual investors do not know how to trade penny stocks effectively to make money.

Imagine, knowing how to make money with stocks without losing money. Unfortunately, penny stocks aren’t the best way to make money in the stock market.

 However, there are some cases where people got lucky and made a lot of money in penny stocks.

Luckily for you, I’m going to show you if it is a good idea to invest in penny stocks. I will even show you if penny stocks can reach a high price and if you can get rich off penny stocks. Remember, all investing carries risks, but penny stocks are extremely risky.

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Is it a good idea to invest in penny stocks?

Penny stocks are typically not a good investment and are usually more of a gamble. The price of penny stocks are often easily manipulated which can lead you to lose money. Additionally, stock price is often a quick way to assess the quality of a company. Penny stocks are cheap for a reason.

People who traditionally put money in penny stocks are hoping to get rich quick. Most people think that a penny stock will go from one penny all the way up to $0.17 for quick cash.

Even by looking at penny stock charts, you can find examples of stocks that have done this. So technically, you could have 17 times your money by finding the right penny stock. Although, most investors that catch this are lucky and not skilled investors.

You can’t get rich quick in the stock market by taking a gamble. You are literally betting on the price of the stock to jump randomly.

Often, the price jumping of a penny stock is called a pump and dump. People with enough money can buy enough shares to make the share price increase. Other people see the price jumping so they buy shares as well, driving the price further up.

The problem is, the person that initiated the pump-and-dump sells their shares. The price of the stock starts to decrease and everyone else loses money.

In addition, the price of a stock usually dictates the quality of the company. There is a reason Tesla, Apple, and Microsoft are not penny stocks. Stocks that have a higher price are generally more stable companies than those with cheap share prices. 

The last thing you want to do is invest in a penny stock that goes bankrupt. There is no guarantee you will get your money back if the company goes bankrupt.

Can a penny stock go high?

Penny stock share prices can  go high for many different reasons. Pump and dumps are one of the risky ways the share price of a penny stock increases. However, good news can also make a penny stock share price increase significantly.

I’ve already covered the risks of pump and dumps. Companies with low float shares are often easily manipulated so that the share price increases. Most people lose money on pump and dumps, except the initiator of the pump and dump.

However, good news is also a way for a penny stock to increase in share price. For example, a pharmaceutical company may be on the verge of bankruptcy. Overnight, a different company made by the failing pharmaceutical company.

Upon good news, penny stocks can turn around. However, most good news is a rare occurrence. 

Instead, the majority of penny stocks go bankrupt. If a company you are holding goes bankrupt then you will be forced to sell your shares at a specific offering price. However, there is no guarantee that you’ll be able to get anything for your shares.

Can you get rich off penny stocks?

It is possible to get rich off penny stocks, but it is very difficult to do and very risky. Most individual investors lose money on penny stocks. Investors should instead focus on buying and holding long-term positions in quality companies.

Most investors would be better off holding exchange traded funds, like the S&P 500. Consistently investing in quality companies over a long period of time has and the best way to become wealthy with stocks.

Summary: Are penny stocks worth it?

As you can see, penny stocks are typically not worth your investment. Instead, invest in high quality index funds or exchange-traded funds consistently over time. The best way to make money with the stock market is through compounding interest through consistent investing.

Technically, it is possible to get rich through penny stocks. However, the majority of people who do get rich got lucky. Penny stocks are often a gamble and not worth your time.

Stock price is often an indicator of how good a specific company is. Instead of focusing on low-cost stock prices, look at the companies that have high prices. You’ll find good companies like Tesla, Apple, and Microsoft. 


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John is the founder of TightFist Finance and an expert in the field of personal finance. John has studied personal finance for over 10 years and has used his knowledge to pay down debt, grow his investment portfolio, and launch a financial based business. He is committed to sharing content related to personal finance based on his experience in his career, investing, and path towards reaching financial independence.