Priced at $5 or lower, a share of penny stock costs less than a fancy frappé at some coffee shops. But, these inexpensive investments can reap sizable rewards for people willing to weather the ups and downs of the volatile penny stock market. Here are four benefits of these increasingly popular investment options.
They are a great way to learn
Investing in penny stocks provides an excellent opportunity to learn about the inner workings of the stock market without a big cash commitment. It’s also a great way to increase your industry knowledge or use what you already know to spot trends and pick penny stocks poised to capitalize on them. The key is to invest in penny stocks that are set for a strong run before they start the race.
No matter what your industry focus, it is also important to parlay your passions into penny stock trading. If you’re researching companies, reading reports, and investigating emerging trends in an area you’re interested in, investing can become a fun, and possibly profitable, pastime.
They add diversity and flexibility
Including some penny stocks in your portfolio is a good way to diversify your holdings. Perhaps your portfolio is already packed with mutual funds that track big indexes or industries. Adding some shares of individual companies is a solid strategy for diversifying stock holdings, especially for someone looking to learn more about how factors such as introducing new products or missing earnings projections can impact individual stocks.
Buying shares in better-established companies can be pricey. Penny stocks are an alternative for those who don’t want to commit a ton of cash to an individual company. And, unlike most other stocks, penny stocks are usually used as short-term investments, which means your money won’t be tied up for long stretches, giving you the flexibility to experiment with other investments.
They add excitement
Because penny stocks are often much shorter-term investments than other types of securities, they can add some intrigue to your investment approach. Penny stocks also have the potential to produce big returns on small initial investments. The penny stock market can be volatile in the downward direction as well, but for investors who think the rewards could be worth the risks, penny stocks are an excellent way to punch up a portfolio.
It’s easy to get going
After you’ve done your reading and research, all it takes to get started in the penny stock market is finding a broker to handle your trades. Many full-service brokers avoid trading penny stocks because they don’t want to deal with the liability of working in such a volatile market.
In contrast, online discount brokerage sites usually require very little money to start an account and can handle your electronic trades. This makes them an affordable option for investors looking to learn about penny stocks firsthand. Because penny stock trades involve a large number of shares, be sure to stick to stockbrokers who charge flat fees and don’t add share-volume surcharges.
So, if you want to add some spice to your financial life, consider penny stocks as an affordable and exciting addition to your portfolio.