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How to Invest in Penny Stocks? Penny Stocks vs. Dividend Stocks

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The content is for informational purposes only. Conduct your own research and seek advice of a licensed financial advisor. Terms.

Top 3 Best Penny Stocks Trading Platforms


1. Stash


Stash Summary

  • Start investing with any dollar amount
  • Buy fractional shares from just $0.05
  • Low monthly fee starting at $3
  • Insurance coverage of up to $10,0001

Stash is a one-stop-shop personal finance app that unites banking, investment, and advice in one place. 

What makes Stash the beginner-friendly app is that it provides advisory services and lets you dip your toes into investing gradually, with as little as $5.

Here’s why you should consider Stash app as a beginner penny stocks investor:

  • Start investing with as little as $5.
  • Buy fractional shares of stocks in companies like Amazon or Apple.
  • Set automatic deposits on a weekly or monthly basis.
  • Only $3 monthly fee (for accounts under $5,000) or 0.25% annual fee for accounts over $5,000.

2. Rocket Dollar


Rocket Dollar Summary

  • Low monthly account fees from just $15
  • 30-day money back guarantee policy
  • Invest in over 7 different asset classes
  • No minimum initial investment sum required

As one of the leading investment apps in the United States, Rocket Dollar lets you invest in stocks with no minimum initial investment.

What’s more, Rocket Dollar is especially beneficial for you if you’re investing for your retirement, because it offers multiple retirement accounts, such as:

  • Traditional IRA
  • Roth IRA
  • Rollover Roth IRA
  • SEP IRA

With Rocket Dollar, you can invest in nearly anything from stocks to real estate and even to precious metals.

3. Public App


Public App Summary

  • Invest in stocks, ETFs, and crypto
  • $0 commission fees for any stock trades
  • Over 100 articles to learn about investing
  • Low 1-2% commission for crypto trades

Public app provides a social platform for all your market investment needs and is therefore the best option for beginner traders.

Now what does social platform mean? The Public app allows you to follow other stock investors and learn by keeping an eye on their approaches. Not only that, but following the experts helps you discover companies with high return potential.

Public offers a great variety of types of stocks you can invest in, including:

  • New Kids on the Block (recently IPO-ed companies)
  • The Future is Female (S&P companies with female CEOs)
  • Cannabis
  • BioTech
  • Self-Driving Cars
  • Etc.

What are Penny Stocks?


According to some in finance, penny stocks are equities that trade for less than a dollar per share. Others, like the SEC, defines them as stocks that trade for less than five dollars.

Their allure is obvious – retail investors can scoop up hundreds (or on margin, THOUSANDS) of shares in a single buy. Let’s say you own 500 shares in company A. One day, their stock price surges from 0.30 to 3.00. In a flash, your position would balloon from $150 to $1,500. You never see 900% gains in ETFs day-over-day, let alone year-over-year.

Your Initial InvestmentYour Funds after Price Surge (from 0.30 to 3.00)Gain
$150$1,500900%

However, the same scenario can play out in reverse. Instead of going from 0.30 to 3.00, let’s say it goes from 0.30 to 0.03. A 90% dive in share prices would shrink your stake from $150 to just $15. This scenario, which hurts countless traders every year, is why penny stocks have such a bad reputation.

What are Dividend Stocks?


Dividend stocks are equities that distribute a portion of quarterly/semi-annual profits to shareholders. For every share you own, the issuing company will pay out a set amount per quarter. For example, if Company B pays $0.50 per share/quarter, and you hold 200 shares, you’ll get $100 per quarter, every quarter.

Do the math in your head. If you own enough dividend stocks, they can give you passive income that’s relatively predictable. So, if you already have a sizable nest egg, you’ll want to invest in this asset class over penny stocks. Your goal is security, not aggressive growth.

Penny Stocks vs. Dividend Stocks. Which One to Choose?


But what if you’re stuck in the middle and can’t really decide whether you go for penny stocks or dividend stocks?

In other words, you’re not starting out, but you’re still far away from retirement.

If you’re in this boat, why not diversify your investment across both penny and dividend stocks?

How to Invest in Growth Stocks While Staying Safe?

Let me share some tips with you on how to invest in penny stocks. But what’s good, you can apply these tips to investing in dividend stocks as well.

1) Keep Your Investing Bankroll and Life Bankroll Separate


This guide assumes you’ve been taking a passive approach to investing (i.e., buying/holding set-it-and-forget-it ETFs). Know that taking investing into your own hands is like going from riding a bus to driving a supercharged motorcycle. It’s more exciting, and you’ll get to where you’re going faster, but the risks are far more significant.

So, before jumping in the stock trading pool, ensure you are playing with funds you can afford to lose. In other words – don’t lock up your rent money in equities that could crash 50% overnight.

2) Invest No More Than 10% of Your Portfolio in Penny Stocks


When you hit your first penny stock win, it’s a dopamine hit like no other. However, don’t let this addictive feeling bait you into taking a disastrous position. Instead of going to the moon, this asset class’s volatility can easily sink your portfolio.

To protect against the worst-case scenario, limit penny stock holdings to no more than 10% of your portfolio. Populate the remaining 90% with more stable equities, like blue-chips, ETFs, bonds, cash, and so forth.

How do you pick your penny stock portfolio? Check out authoritative resources like InsiderFinancial.com, as they do a great job covering penny stocks on the move.

3) Funnel Penny Stock Gains into Dividend Stocks


Market commentators go on and on about the power of compounding. While they’re right, far fewer pundits trumpet the merits of dividend stocks. By sinking significant capital into a diversified dividend portfolio, you can grow a cash flow that, in time, will grant you financial freedom.

Start by seeding your dividend stocks with $200/month contributions (or more). As your dividends generate income, recycle the proceeds into more dividends. Also, as you hit penny stock windfalls, plunge a significant portion of them into – you guessed it – MORE DIVIDENDS.

Eventually, your position will get to a place where your quarterly dividend income will cover more than 100% of your financial obligations. At that point, you are officially “free”.

4) Play to Win, But Safe


Investing aggressively and safely sounds like a mystery, but it isn’t. By doing your research and setting up a reliable system, you can protect yourself from fatal risks. Stay alert, and soon enough, you should be able to earn enough to free yourself from the rat race.

Final Thoughts: Is Investing in Penny Stocks Worth it?


Overall, while trading penny stocks is the best option for beginner investors, it’s still not for everyone. Just like any other type of investing, investing in stocks involves risk as well. However, if done right, trading penny stocks could turn into a lucrative way of making money.

I’d recommend you learn more about investing and leveraging the robo-advisor services most investment platforms (including those I’ve listed above) are offering to beginner traders.

Finally I’d say that investing in penny stocks is worth it only if you don’t rush into it and invest gradually.

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