What's the most cost-effective campaign structure?

2 options:

1. The keywords in an ad group share 1 term- e.g blue widget, red widget, yellow widget

2.The keywords in an ad group share 2 terms-
red widget online, red widget buy, red widget great etc.

I understand that option 2 is better, but will I get Penalized (in terms of min cpc, exposure, quality score) for choosing option 1?

If I choose to build my ad groups as in option 2 it would mean breaking down the keyword list into very small and targeted ad groups, which is very time consuming.

I prefer to start with option 1, and break down the ad groups (or "pill and stick") only when I see some traffic that justifies the work. On the other hand if I get penalized (even unknowingly by getting less exposure) I'll go for option 2 from the beginning.

Would love to hear your opinions about this approach.