Penny stocks may seem like a good idea on paper. Buy a stock for five cents, watch it go up to twenty cents. Wow! You just quadrupled your investment. Very cool. Why not rush out there and sign up for a penny stock broker today?

The reason you shouldn’t do this is because penny stocks are a BAD INVESTMENT, plain and simple. While they seem great on paper, penny stocks suffer from something called a lack of liquidity. Most stocks have so many buyers and sellers that you can always find someone to buy from or sell too, but in the case of penny stocks, this often isn’t so. Poor liquidity means that you might not be able to get in and out of your investment like you would like to.

This poor liquidity also makes penny stocks prone to being manipulated. You know those spam e-mail you get everyday telling you how “this stock is going to explode in the next 27.5 hours! get in on the ground floor!!!!!”? Yeah, those are ways of manipulating the market. While it might seem ridiculous that anyone would be a stock from a random e-mail, apparently they do, or the spammers would have given up long ago. So, perhaps someone is getting rich off of penny stocks, but it probably won’t be you. Time to deal with it I think.

So, what can you do? If you ask me, set up an account with Vanguard, buy into one of their life cycle index funds, and be done with it. Sure, it may be boring, but at least you’ll actually be growing your money. And that, we can all agree, is a good thing.