Penny stocks are investment opportunities in stocks that are extremely low in value. According to the financial experts at Money Morning, “Penny stocks are shares of stock that trade for under $5.”
They are also highly volatile. However, they may also represent incredible opportunities for financial gain.
Features of Penny Stocks
Penny stocks are relatively distinct in their own right. In addition to the low share price, they are often brand new companies that have just premiered on the stock market.
They may not be fancy or splashy enough to offer a big IPO, but they are often capable of breaking out and becoming highly lucrative.
Conversely, penny stocks may be companies that are on their way out, and just days away from bankruptcy.
Penny stocks are easy to find, and it can be hard to tell the difference between a rising stock or one that is on its way out the door.
Remember, just because a company has a penny stock doesn’t mean it’s dead in the water.
Indeed, the top penny stocks often companies that seem to be on the verge of death, only to make a miraculous recovery.
Reasons to Invest in Penny Stocks
There are quite a few reasons why investing in penny stocks may be worth it.
For starters, given their low cost, you have the potential to invest in a stock for a relatively low amount of money – only to see it grow.
Even if the company goes bankrupt and you lose your investment, it probably won’t be a huge amount of money.
Furthermore, if you pick the right company, the sky is the limit.
With vigorous enough research, you can potentially spot a diamond in the rough and make a huge return on investment.
Many companies began as penny stocks, only to see their valuations grow significantly over time.
Risks of Penny Stocks
There are serious risks here.
First, penny stock scammers are everywhere, and it can be very easy to invest money in a penny stock – only to watch that disappear, taken by either a broker, website, or a scam company.
Stringent research can help mitigate these risks.
Penny stocks are highly volatile. This volatility may work in your favor – but it also may work against you. Depending on your time horizon, this can represent a huge problem for you.
There is also an opportunity cost when it comes to penny stocks.
Every cent you invest in a penny stock may be better spent in a high-quality stock that has more growth potential, less risk, and a greater chance of appreciating or returning a strong dividend.
So, are Penny Stocks worth it? Ultimately, that comes down to you and your investment strategy.
The most important thing when it comes to Penny Stocks is to make sure that you fully understand the potential risks and rewards of these stocks before you invest a cent of your hard-earned money.
