Penny stocks may seem like a smart option, especially if you're on a tight budget. These stocks often trade for less than $1 per share, so you can get a lot for your money -- even if you can't afford to invest much.
However, penny stocks can be incredibly risky. They're often extremely volatile, experiencing dramatic price shifts from day to day. It's also often harder to sell penny stocks, so you could end up stuck with your investments when you're ready to get out.
Image source: Getty Images.
Finally, it's nearly impossible to thoroughly research these stocks. Penny stocks are often issued by smaller companies that don't have as much public information available as larger corporations. That can make it challenging to determine whether the stock is a good investment or not.
Fortunately, there are other types of affordable investments that don't carry nearly as much risk. With these two exchange-traded funds (ETFs), you can double your money with no effort.
1. Schwab US Small-Cap ETF
The Schwab US Small-Cap ETF (SCHA +0.03%) tracks the Dow Jones U.S. Small-Cap Total Stock Market Index. It contains close to 1,800 holdings spanning a variety of industries, including healthcare, information technology, financials, and industrials.
Small-cap stocks can sometimes be riskier and more volatile than larger corporations. However, they also have higher potential for growth, so you could experience higher-than-average returns.
This ETF was founded in 2009, and since then, it has experienced an average rate of return of around 14% per year. At that rate, if you were to invest $1,000 right now and didn't invest any additional cash, you'd double your money in around five years.
You could earn even more if you were to continue investing consistently. Say, for example, you invest $1,000 now and also continue investing $100 per month. If you were earning a 14% average annual return, you'd have:
- Close to $10,000 in five years
- Nearly $60,000 in 15 years
- Around $480,000 in 30 years
Keep in mind, too, that ETFs require very little upkeep. They perform best when you leave them alone for as long as possible. All you need to do is continue investing and let the fund do all the heavy lifting.
2. Vanguard S&P 500 ETF (VOO)
The Vanguard S&P 500 ETF (VOO +0.56%) tracks the S&P 500, meaning it contains 500 of the largest companies in the U.S. It's generally considered one of the best representations of the stock market as a whole. This makes S&P 500 ETFs one of the safest types of investments out there.
Despite their relatively low level of risk, S&P 500 ETFs can still experience high returns. Since the Vanguard S&P 500 ETF was created in 2010, it has earned an average 15% annual rate of return.
Similar to the Schwab fund, investing $1,000 right now would double your money within around five years with no effort. In addition, if you were to invest $100 per month earning a 15% annual return, here's how much you'd have over time:
- Just over $10,000 in five years
- More than $65,000 in 15 years
- Nearly $588,000 in 30 years
You don't need to put your money behind extremely risky investments to make a lot of money in the stock market. By investing in these ETFs instead, you can grow your money easily and safely.
