Your Best Shot at Turning $100 Into $100,000

This strategy involves basic math and taking very little if any, risk

This little data point came as no surprise.

I’ve been there before. If you have a brokerage account, you probably have too.

You can’t deny it — the math on buying penny stocks is psychologically attractive, particularly for young or new investors.

A penny stock, by the way, tends to trade for less than $5.00. They’re generally floated by small, speculative companies. In this article, we look at the allure of true penny stocks — priced well under $1.00 — and how to resist them.

No personal finance platitudes. I illustrate an actual plan, rooted in behavior, emotion, and basic math.

You have $100.

If you purchase a $100 stock, you own one share. That doesn’t look or feel very baller.

That same $100 can buy you 1,000 shares of a $0.10 stock. A large position in a low-priced stock not only looks better to certain parts of your brain, it flashes an enticing, even if unlikely risk-reward scenario.

The ill logic behind the thought trajectory penny stocks can take you on seems absurd, until you’re swept up in it. It can wreck otherwise sane and logical individuals.

You look at the $100 stock and imagine your penny stock getting there. If it does, your 1,000 shares are worth $100,000.

You make yourself believe this can happen. That it will happen.

You fall for the carefully manufactured hype, otherwise known as the pump and dump:

Pump-and-dump” schemes involve the touting of a company’s stock (typically small, so-called “microcap” companies) through false and misleading statements to the marketplace… Pump-and-dump schemes often occur on the Internet where it is common to see messages posted that urge readers to buy a stock quickly or to sell before the price goes down, or a telemarketer will call using the same sort of pitch… Once these fraudsters “dump” their shares and stop hyping the stock, the price typically falls, and investors lose their money.

You refuse to believe the more likely scenario that has happened — repeatedly — with stocks such as Amazon.com and Alphabet (the artist formerly known as Google).

That the $100 stock will soar to $1,000 and beyond. If you bought one share of Amazon at $100 ten years ago, you’d have more than $3,000 today. Imagine if you just bought a little bit more Amazon each month or so over the last ten years. You would likely have considerably more than $100,000.

I’m not advocating Amazon.com. It’s merely a great example. We don’t recommend particular stocks here. However, I am saying you absolutely will go wrong if you buy penny stocks, with little exception. If you win with a penny stock, it’s called luck.

There’s nothing lucky about having a sound personal finance plan that leads to an investing strategy that focuses on buying best of breed companies that don’t require a pump and dump.

Consider the following illustration of how this can look.

Resist Lifestyle Expansion

It happens to the best of us. We flirt with lifestyle expansion:

That’s the personal finance designation for spending more as you make more. And it’s the number one reason why people who make good money fail to build wealth. It’s why we have so many $60,000 a year millionaires on our hands.

The numbers don’t lie. If you somehow can generate additional income each month — working more, working smarter, a raise, whatever — you can turn that excess cash into wealth if you don’t spend it.

Let’s say you start taking home an extra $1,000 a month. It happens. Sometimes temporarily. Other times for a while. Maybe forever. For the purposes of our nerdy illustration, let’s give it a five-year duration.

$1,000 a month X 60 months = $60,000.

Maintain an Insanely Low Cost of Living

It’s my second most popular Medium article to date because it resonates:

While some people work and live to spend, others do it to save, invest, build wealth, and enjoy life. And they geek out and get off on the process.

Imagine getting that raise — or not — then finding a way to cut an expense or two.

As an extreme example, the pandemic revealed something shocking. Prior to March of this year, I routinely spent around $1,600 a month in restaurants and bars. I now cook and eat most of my meals at home.

As the dust has settled, my net savings is in the neighborhood of $1,200 a month.

$1,200 a month X 60 months = $72,000

Save Regularly and Purposefully

Don’t “yeah, but.” Defeatist, “yeah, but” attitudes suck.

The numbers I throw out don’t have to be your numbers. The first one ($60,000) isn’t mine. It’s arbitrary. The second one — that’s real life. My life. You can come up with your own figures.

Most people have something near this level of savings staring them in the face in their budgets. To exploit it, they simply must compromise.

Compromise isn’t a bad word.

It’s just a choice you make in one area to get something you want more in another.

No matter how much you have to save, it’s critical you save it regularly and purposefully. Keep pots of money to pay bills, stock an emergency fund, achieve further cash security, and, ultimately, financial flexibility.

Invest Regularly and Purposefully

The same goes for investing.

You’re not going to turn $100 into six figures speculating on penny stocks. However, over time, you absolutely can turn $100 a month into six figures by investing in best of breed stocks. I choose the dividend reinvestment route. This is merely one flavor out of myriad viable choices.

Sadly, we view getting rich quick as sexier than methodically building wealth.

Sad, though hardly surprising.

While I hesitate to call them sacrifices, I’ll set semantics aside. To adopt a defensive spending, saving, and investing plan designed to build wealth over time — even a time frame as short as five or ten years — requires sacrifice.

Okay, I’m done setting semantics aside.

Think about relationships with people, not money. To form a better communicative and intimate bond with your significant other, you make compromises. Compromise in a relationship is good. Sacrifice — particularly sacrificing yourself — not so good.

So there’s a difference.

Step one to adopting as close to a risk-free wealth-building strategy as you’re going to get requires a mindset that understands and appreciates the distinction between sacrifice and compromise.

Step two embraces it and eschews psychologically appealing approaches near-certain to set you back in big, if not insurmountable ways.

This article is for informational purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.