“If I gave you $1,000, could you put it into some cheap stocks that’ll grow fast?” a friend asked me the other day. “My brother-in-law said he turned $1,000 into $10,000 through penny stocks in, like, three months.”
This isn’t an uncommon conversation for those of us who do any finance-adjacent work. Especially in my rural, working class community, few people can imagine what a personal finance writer actually does, so they make associations with the words they recognize.
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I’m going to tell you the advice I offered my friend, but first, a couple of technical clarifications:
In fact, I can’t advise you on any specific financial products to buy. I’m a Certified Educator in Personal Finance®, so I can teach you about money, but I’d have to be a fiduciary, like a Certified Financial Planner®(CFP), if I wanted to give advice about specific securities.
I also can’t take your money and invest it for you. No one can do that except a Registered Investment Advisor. If you work with a CFP or any kind of “financial advisor,” they can only direct you to move money yourself — unless their firm is an RIA.
Note these details when you’re asking for financial advice! The stock market is complex, and there’s a reason only certain professionals are allowed to direct your investments.
Now, for those folks who have a small amount to invest and want to turn it into a larger amount quickly?
First, I’m sorry to be the one to tell you that’s not realistic.
I know your brother-in-law told you he did it — every white woman in America has a brother-in-law who’s struck it big in the stock market and just has to tell you about it. (Yet, somehow, this shining talent is no better off financially than you are? And, oh, did he just watch Wolf of Wall Street last weekend? 🤔)
He’s probably lying. Or at least exaggerating. Or he’s really, really lucky.
If you choose to buy $1,000 worth of any individual stock, you have to be prepared to lose $1,000. But especially if you choose to buy any amount of penny stocks, you have to be prepared to lose all of that money. These low-cost stocks aren’t listed on the major exchanges, and they might not be regulated in the same ways you expect of other investments. As writer and stock analyst James Royal writes for Bankrate:
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. If you don’t have that skill, the chance of you doing well in penny stocks is almost zero.
No one can predict the future, and that’s what you have to do to find a stock that’s guaranteed to go up. Even professional traders who have the analysis skills Royal mentions are statistically not that good at making investments grow any faster than the stock market is growing as a whole.
Like I said in my latest article for Business Insider, trading individual stocks is akin to gambling, and the people who win big do it because they start out with a lot of money they can afford to lose.
Unless you're investing for the thrill of big wins and losses, stop seeking get-rich investment strategies from people who were already rich.
[For most people] your investments are not a game; they're your savings. If you're going to put them in the market, find safe, stable funds for your life savings so they're likely to be there when you need them.
Invest in people, not shady stocks
Second, though, I do have an answer for my friend that’s much more interesting than putting $1,000 into penny stocks or any stocks.
Lend money to people in need through SoLo Funds.
SoLo Funds is a community finance app that lets members request micro-loans to cover unexpected expenses, offering a "tip" of any amount in return. As a lender, you can fund the loans and earn a return through tips.
Borrowers set the amount of the loan, the repayment period and the tip amount — unlike borrowing from a bank, payday lender or paycheck advance app, this process puts borrowers in complete control. Borrowers are scored on the platform based on their SoLo Funds history (no credit checks or other outside reporting), so you can get a sense of the likelihood your loan will be repaid on schedule and make lending decisions accordingly.
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SoLo is not a charity app; you get your money paid back, and then some. I spoke with the company’s co-founder, Rodney Williams, for You Don’t Need a Budget, and he explained they wanted to create a financial ecosystem to support the people that our financial systems ignore — not only when they’re in need of money but also when they’ve got money they want to grow.
He also said the average annual return lenders receive through SoLo is higher than the average return on micro-investment apps like Robinhood. Just like those apps, you can make hands-on decisions about where to direct your money. And just like with penny stocks, you can get started with a small amount of money to invest. But SoLo lets you do something neither investment apps nor penny stocks lets you do: use money to directly help another human in need.
That sounds like a much more satisfying place to put your money than into an unknown company that might be a scam, right?
(P.S. This isn’t a branded post for SoLo Funds; I just plug this company whenever I can! It’s not the first or only peer-to-peer lending platform, but its approach is unique. Most platforms act a lot like banks and feel pretty close to any other type of investing. The way SoLo puts borrowers in control and is accessible to small-dollar lenders is breaking the mold, and I’d love to see more of it. I’ll happily recommend its competitors, too, if any should emerge!)
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