Stock graph with upward trend, symbolized with a penny
Are you looking for investment opportunities?
Many people think a lot about their future as they get older. They often think about things like how much to save for retirement. For most of these people, the answer for the last question is investing.
This is because there are many investment options and one of them is penny stocks. While new investors weigh the pros and cons of penny stocks, experienced investors have divided opinions on the matter.
Some say they are a boon for investors, while others consider them to be a curse. Today, we’ll show you what penny stocks are along with both their pros and cons. Decide for yourself whether they’re a boon or a curse by reading what’s below.
What are Penny Stocks?
Penny stocks are more than only being pennies worth money. Penny stocks are a high-risk and high-reward type of investment. This is because investment opportunities found here are often cheap compared to other options.
The reason they’re cheap is that they don’t have that many investors or they don’t have an expensive foundation to justify their price.
Often, these investment options are cheaper is because they’re small companies. They tend to be those who are down on their luck in their earlier endeavors, resulting in their current prices. They are also often the ones who get overlooked because of more popular brands in the same line of business.
If they’re a low-costing option, why are they also considered high-risk? Well, this is because investing in a penny stock gives you no guarantees.
While you can argue that all companies started off with humble beginnings, there were next to no competition back then. Today, there are a lot of big brands with higher stock values and better return guarantees. These may prevent you from getting your returns if your penny stock continues to become overshadowed.
Pros of Investing in Penny Stocks
Despite the bad press it’s gotten, penny stocks can still be a big boon for your investment portfolio. After all, if it’s all bad, no penny stock would be the best performing stock in America. All you need to do is make sure that you read into your options before you make any investment decisions.
Here are some of the benefits you can reap when you invest in a penny stock.
You can Gain More Stock While Spending Less Compared to Other Stocks
With penny stocks being cheaper than most, you can get more stocks with a smaller investment.
However, when you trade that same amount for shares in a penny stock, you can get more than expected. You can get 50 or even 100 shares of a penny stock with ease.
With how fast penny stock prices move, you will soon be thankful of how many shares you have.
Stock Prices Move Faster than Usual
Penny stock trading happens fast.
Their prices are often in constant motion on a day to day basis. This means you may soon notice that your shares are worth 10 times more than when you bought them.
Compared to the usual growth rates, which are months or sometimes even years for the prices to have a slight shift, penny stocks can give you a big return in no time. This makes it a worthwhile investment for those who need cash in their near future.
Cons of Penny Stock Investments
Like with every penny, there are 2 sides of the coin. For every benefit you get for penny trading, there is a hindrance of equal or greater value. These are some of the reasons that many people consider penny stocks to be a curse.
The Market is Volatile
One reason why penny stocks are a risky investment is that of its volatility. Popular penny stocks get a lot of attention from marketing blogs and sometimes even in the news. This makes them popular which is good for a while, but when more people join the bandwagon, it can cause it to crash.
This happens because when more people buy more shares, they drive the stock’s price up. Multiply that instance for every investor purchasing shares, and soon the prices become unsustainable. This can cause the stock to crash and become worthless as times goes on.
This may leave a lot of investors getting much less than what they paid for.
Scams are Everywhere
The reason why many people have bad opinions on penny stocks is that they’ve had bad experiences with it. Most of these experiences are because of scammers. It’s easy to disguise penny stocks into scams, what with their low prices and all.
Many people find themselves tempted to invest in something before other people find out. This is the kind of attitude scammers want their victims to have. They also don’t worry about having a solid history in their fake stock because most penny stocks are also new.
How to Buy Penny Stocks
You can never get enough penny stock tips when you’re investing in them. As mentioned above, scammers litter the penny stock scene. To avoid scams, you should take time to learn about your favored penny stock.
Even new penny stock companies have something to say about their goals. Learning about their future goals will help you discern scammers from legitimate stocks. You should also consider limiting how much you spend on each stock.
Doing this ensures you don’t lose too much money if a stock crashes. This will also help you diversify your portfolio. Speaking of diversity, when branching out, remember to only go for high-quality stocks.
You can tell if a stock is high-quality if it has a higher price than most penny stocks. This makes sure that the investments you make have more of a chance to succeed. Once you see that a stock raises in price, you should know whether it’s worth selling.
Knowing when to sell a stock is tricky.
A good rule to follow is to sell your stock once it becomes 5x what you spent on it. This makes sure that you don’t lose money and that you don’t hold on to a stock for too long. Penny stocks are more of a short-term investment, so it’s a good idea to sell when you can.
Learn About the Pros and Cons of Penny Stocks and How to Buy Stocks Today
Want to learn how to invest in penny stocks? It’s never a waste of your time to learn about the pros and cons of penny stocks. Doing this will give you the knowledge necessary to succeed with your investments.
So, what are you waiting for? Make your investments now!
Unsure of your investments? Why not hire a financial advisor? If you’re still on the fence about it, here are 5 good reasons to hire one to convince you.
Leave a Reply