Think Smart with Penny Stocks


Source: http://www.sophisticatededge.com

Are you considering investing in penny stocks with the hope of making lots of money? If you are you’re certainly not alone. But you should be aware that penny stocks – while being extremely cheap to buy per share – are far riskier than other more established and more expensive stocks.

Think smart when you consider investing

If you have money to invest and you want to invest it in the stock market, it makes sense to invest it in more than one company. This means you will be spreading the risk. If you pour everything into one company and the value of the stocks goes down, you’ll lose money. However if you spread your investment between, say, three or four companies, you stand a better chance of making more money.

This is a worthwhile point to note if you are going to invest in penny stocks. While spreading the risk is important in all investment situations, it is even more important when dealing in penny stocks.

What are the odds of making money with penny stocks?

Bear in mind that there is no such thing as a sure thing. While penny stocks are cheap and thus more appealing to those with lower investment budgets, they also represent a much higher area of risk.

Yes, you could make a lot of money if you pick the right penny stocks. But you could also lose a lot. We all want to find a company that is going to be a successful household name in the future. But the odds aren’t good.

Create a separate investment fund for penny stocks

If you understand the risks that come with investing in these particular stocks and you still want to go ahead with it, make sure you set aside a separate pool of money to devote to penny stocks. This should be cash that isn’t required for anything else. If you would be in financial trouble if you lost it, avoid investing in penny stocks.

Do your research – and don’t rely solely on the advice of others

If you take a look online you will find a wealth of websites and information regarding penny stocks. It seems that everyone has their own idea about which companies are the best ones to invest in.

But remember that this is your money you are investing. Do your own research and find all the information you can on the companies you are interested in buying penny shares for. You may do better to choose companies in a particular area of interest, such as green energy or manufacturing for example. If you know a lot about a particular area already you can use this knowledge to make sure you stand a better chance of picking shares that might be more successful.

Are penny shares right for you?

A lot of people randomly pick penny shares because they are cheap to buy and they hold the potential to soar in value. But for every one that does there are many more that fail, so bear this in mind.