Penny stocks are defined as shares that start at $5 or less, though it may also refer to companies with a total value of $10 million or less. Due to their cheaper initial investment, many people wonder if these stocks are worthwhile. As with any stock, it is important to weigh the pros and cons before buying in.
Do Thorough Research
When considering a penny stock, do plenty of research on the company being invested in. Take note of rises and falls in the stock’s value as well as whether or not the company is brand new. Most importantly, feel confident in what the company is providing, whether it be a service or a product. Not feeling confident in the company could mean lack of confidence in the stocks and an overall feeling of having made a major investment mistake.
Pros: Once a Penny Stock
It is also important to note that some of the most well known, most valuable stocks today all started out as penny stocks. This includes name brands such as Walmart, Samsung and more, all started out as penny stocks. Keep in mind that a penny stock now does not necessarily indicate a company that doesn’t have potential to expand.
As with any stock, including traditional stocks and penny stocks, there is some risk to be understood. Investing in a penny stock does not mean a payout will occur. In fact, it’s just as likely for an overall loss to occur. However, because all stocks are a risk to begin with, this shouldn’t necessarily deter someone from investing.
Greater Risk, Greater Reward
It is commonly thought that the ‘greater the risk, the greater the reward.’ However, this is two-fold and may fall under either pro or con. For some people, penny stocks may pay out big time. However, for others, penny stocks may cost them more money than they had intended to invest. It’s important to know and understand that penny stocks are a great risk.
Be Realistic, Have Patience
Finally, when considering a penny stock, it’s important to be realistic about the investment. Recognize that investing in stocks of any kind require patience. It’s important not to expect big results overnight or even after a few weeks. Patience, combined with realistic expectations, can help minimize stress over whether or not to invest in a penny stock.
Penny stocks are a risk, but they can also be well worth the risk. However, only the investor can decide if these stocks are worth the investment. Considering the pros and cons, including risks, can help determine whether penny stocks are the right choice for certain investors.