Just starting your investment portfolio? Want to learn about the stock market without risking everything on one or two investments? Don’t have a lot of money, but still want to get started on your investment portfolio? Or, maybe you just want to play the stock market without risking your current investment portfolio?
Regardless of your reasons for looking for affordably priced stocks, investing in penny stocks can and does pay off! So, how do penny stocks work? And, are there advantages and disadvantages to trading in penny stock?
Obviously, the biggest advantage to investing in penny stock is affordability! Many of these stocks sell as low as $0.05 per share, enabling an investor to purchase a sizeable number of shares for an extremely reasonable amount of money. Imagine how rich you’ll feel owning 10,000 shares of stock…even if you did only invest $500.00 in the purchase! At this price, you can get started for just a few dollars a week, compared to the big stocks, where $500.00 will only buy you a very few shares in one or maybe two companies.
Even more interesting, penny stock carries a larger potential for profit per share than some of the more well known stocks. For example, if you own 20,000 shares of stock in XYZ stock at $0.05 per share, and the stock price doubles, you will have quickly made $1,000.00, but if you were to invest that same $1,000.00 in stocks that cost $100.00 per share, and the stock price goes up the same $0.05, you would only have made $0.50! Obviously, the penny stock proved to be a more profitable investment in this example.
At the same time, keep in mind, that you can also lose money with penny stocks. Suppose your $1000.00 investment declined by $0.03 per share? That’s right, you’d lose $600.00 of your $1,000.00. This can make investing in penny stocks very risky and requires very precise movement when it comes to buying and selling the shares. And, while the rest of Wall Street focuses on the major stock markets, there’s just not as much information available on penny stocks, so you’ll need to do a little more research into the companies that you decide to invest in, as there are some less than reputable companies in the penny stock market. You’ll also want to keep a closer eye on that company once you have determined it is a legitimate investment opportunity, as well as the overall market for the goods or services produced, to make sure that your investment does not become “obsolete.”
