Money Analysed

Penny Stocks vs Fractional Shares: Understanding Your Investment Options

Investing is a great way to grow your wealth, but it can be overwhelming for beginners. Two popular investment options are penny stocks and fractional shares.

Penny stocks are shares of small companies that trade for very low prices, while fractional shares are a way to own a small part of a stock. In this article, we’ll explore both options in depth, from their definitions and trading locations to their advantages and risks.

We’ll also analyze alternative investment options such as ETFs and robo-advisors.

Penny Stocks

Penny stocks, as mentioned earlier, are stocks of small companies that trade for very low prices, usually less than $5 per share. They are listed on the Over-the-counter (OTC) market or the so-called pink sheets.

The OTC market is a decentralized stock market where stocks are traded through dealers instead of a centralized exchange, making the market less regulated than larger exchanges like the NYSE or NASDAQ. One of the reasons why some companies list on OTC markets is that they do not meet the financial reporting standards required by larger exchanges.

Another reason is that they may be at risk of being delisted from a larger exchange if their share price falls too low. Investing in penny stocks can be risky, but it does come with some advantages.

The most significant advantage is the potential for huge gains, as penny stocks can experience significant price swings. Another advantage is that they are very inexpensive, making it easier for investors to purchase a large quantity of shares.

However, there are also a few cons to investing in penny stocks. Firstly, there is a lack of regulation in the OTC market, which can give rise to scams and frauds.

Secondly, there are issues regarding liquidity. Since penny stocks are traded over the counter, it may be difficult to find buyers if you want to sell.

Lastly, penny stocks are more volatile than larger company stocks, which can make them unsuitable for long-term investors. To protect yourself when investing in penny stocks, make sure you do your research and understand the potential risks involved.

Always be cautious of scams and scams and diversify your portfolio to include other investment types.

Alternative Investment Options

If you’re not comfortable investing in penny stocks, there are other investment options to consider. ETFs, or exchange-traded funds, are a great alternative to penny stocks.

They are basically a basket of stocks that track a particular market index, like the S&P 500. ETFs are traded on exchanges, making them more regulated than penny stocks, and they offer more diversification.

Robo-advisors are another alternative investment option that can provide hands-off investing. They are online investment management platforms that use algorithms to manage your portfolio automatically.

Robo-advisors can help you invest in a diversified set of assets to minimize risk and maximize returns.

Fractional Shares

Fractional shares are another investment option that can be useful for those with a small budget. They are a way to buy a fraction of a share, which allows investors to invest even small amounts into expensive stocks.

Fractional shares are marketable securities that can be bought and sold like regular shares. For example, if a single share in a company costs $100, you could buy a fraction of that share, say 0.1 (1/10th of a share) for just $10.

This way, you can invest in high-value stocks without shelling out a significant amount of money. Fractional shares are offered by online brokers like Robinhood and SoFi.

One major advantage of investing in fractional shares is affordability.

Instead of buying a whole share at a higher price, you can invest as little as $1 in your desired stock, thus enabling you to spread your money across multiple stocks and diversify your portfolio. One risk of investing in fractional shares is that the returns may not be substantial.

This is because each fraction of a share only represents a portion of an entire share. If the stock’s value does not rise sufficiently, you may not make a meaningful profit.


Investing can be a great way to grow your wealth over time, but it’s essential to understand the risks and benefits involved. Two popular investment options are penny stocks and fractional shares.

Penny stocks are cheap stocks of small companies that trade on the OTC market or pink sheets. Fractional shares, on the other hand, are a way to buy a small fraction of a share to diversify your portfolio.

There are risks and benefits to both options, so it’s important to do your research and understand your investment goals before committing to either option.


A robo-advisor is an automated online platform that provides investment advice and portfolio management services without human intervention. A robo-advisor uses algorithms and a set of rules to allocate your money among various investments based on your risk tolerance, financial goals, and other factors.


Robo-Advisors Work? First, you sign up with a robo-advisor provider and answer a questionnaire that assesses your risk tolerance, investment goals, and other parameters.

The robo-advisor then uses these answers to create an individualized portfolio that matches your risk tolerance. The robo-advisor invests your money in a pre-determined set of exchange-traded funds (ETFs) and mutual funds, which are selected based on your investment goals and risk tolerance.

Robo-advisors use a variety of criteria to create your investment portfolio, such as the type of assets, the sector, the size of the company, and the risk level of the investment. The portfolios are usually diversified across multiple asset classes, including stocks, bonds, and commodities.

Advantages of Using a Robo-Advisor

One main advantage of using a robo-advisor is that they offer diversification. Robo-advisor portfolios usually include a diversified mix of ETFs and mutual funds, which minimizes the overall risk of your portfolio.

Diversification can help you avoid a significant loss in the event of a market downturn. Another advantage of using a robo-advisor is that there is usually no minimum balance requirement.

This means that you can start investing with a small amount of money and add more as you go. This is an ideal option for those who are just starting their investment journey or who have limited funds to invest.

Limitations of Using a Robo-Advisor

One limitation of using a robo-advisor is the inability to invest in individual stocks. If you want to invest in individual stocks, a robo-advisor may not be the best option for you.

Robo-advisors typically use ETFs and mutual funds to create portfolios, which means that you do not have control over the specific stocks in your portfolio. Another limitation is that a robo-advisor may not be suitable for those with complex investment needs.

Robo-advisors are designed for those who want a simple, low-cost approach to investing and cannot accommodate unique or complex investment strategies.


Can You Make Money with

Penny Stocks? While penny stocks have the potential for significant gains, they also come with a lot of risks.

Investing in penny stocks requires a lot of research and knowledge about the company. If you can find a penny stock that is undervalued and has potential for growth, you could make a profit.

However, penny stocks are highly volatile, and there is a greater risk of losing money than with stocks of larger, more established companies. How to Start Investing with $100?

If you’re new to investing and have only $100 to invest, fractional shares and robo-advisors are two great options. With fractional shares, you can invest small amounts of money in expensive stocks and create a diversified portfolio.

Robo-advisors are another option that can provide you with low-cost investment management services to grow your wealth. Alternatives to

Penny Stocks

For those seeking alternatives to penny stocks, fractional shares and robo-advisors can be good options.

Fractional shares allow you to buy small pieces of expensive shares of stock, while robo-advisors are designed to create a diversified portfolio suited to your individual needs. Both offer lower risks than penny stocks and are a great way to start investing without breaking the bank.


In conclusion, penny stocks can be an attractive investment option due to their low prices and potential for significant gains. However, they also carry significant risks due to their lack of regulation and high volatility.

It’s important to understand the potential risks and take steps to protect yourself when investing in penny stocks.

One way to protect yourself when investing in penny stocks is to diversify your portfolio.

Investing in a mix of assets, including stocks, bonds, and commodities can help mitigate the overall risk of your portfolio. ETFs, fractional shares, and robo-advisors are all great alternatives to penny stocks that provide diversification and lower risk.

Robo-advisors offer investors a simple and low-cost way to invest in the stock market. They use algorithms to manage your portfolio, which helps to reduce risks and optimize returns.

Fractional shares are another option for those with a smaller budget. Fractional shares allow investors to buy a portion of an expensive stock to diversify their portfolio.

ETFs are another alternative that provide investors with the opportunity to diversify their portfolio across an entire market index. It’s important to note that investing carries inherent risk, regardless of which investment option you choose.

It’s essential to do your research, understand your investment goals, and invest responsibly. By investing in a diversified portfolio and using protected investment options, you can help mitigate the risks and build wealth over the long term.

In summary, investing can be a great way to grow your wealth, but it’s essential to understand the risks and benefits of each investment option. Penny stocks, while alluring due to their low prices and potential for big gains, carry significant risks.

Protecting yourself when investing in penny stocks is key, and diversifying your portfolio through options such as ETFs, fractional shares, and robo-advisors can be safer alternatives. Ultimately, research and responsible investing are necessary to mitigate risks and build wealth over the long term.

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