How To Invest Safely in Penny Stocks

Penny stocks are the term that is used to refer to small scale investments that usually sell their bonds and stocks for just a couple of dollars. One of the reasons why the penny stock has gained popularity is because it is one of the cheapest types of investments that you can make. With just a couple of dollars, you can begin your career in investing through penny stocks. If you want to try out penny stock investing, here are some things that you need to consider.

  • Research. First of all, you need to learn as much as possible about penny stock investing. Smaller companies that want to expand their business usually offer Penny stock investing. The problem, however, is that the smaller companies that are just starting up usually have a very high mortality rate. This means that most of these companies will eventually end up broke or bankrupt. In short, you should know that there are very high risks when it comes to penny stock investments. Nonetheless, you should know that there are still a number of penny stock investments that do well in the end.
  • Start small. Next, make sure that you start small when you are investing in penny stocks. As anyone will tell you, these types of investments are very high risk. The last thing that you want is to put in all of your earnings on penny stocks, which will likely leave your broke and penniless. Start with a couple of hundred of dollars, or whatever small savings you have for the month. This is especially important if you have never tried any form of investing before. Start small so that you get a feel of how the penny stocks work, and just how much risk there is involved.
  • Know the rules. Next, you should also consider the rules that the Securities and Exchange Commission has. These rules are designed for your best interest, and you should read up on them. The basic rules are that each transaction must be certified with a written instrument, and that the company who has offered the penny stock to you must provide you with detailed information on the types of risk s that are involved in their stocks. You should also be provided with a broker who will give you the present market value of the stock that you have purchased. Finally, the company that you invest in should also provide you with monthly reports on how the penny stocks are doing.
  • Consider your portfolio. If you have been dabbling in investments in the past, you should also consider your present stock portfolio. As much as possible, your stock portfolio should be comprised of no more than ten percent of the total stocks that you own. Anymore and your entire stock portfolio will be placed at risk, since bulk of your investment will have been placed on penny stocks.

Although investing in penny stocks can be challenging and the losses can be great, it is still a great way to earn a little bit of money – provided that you take the necessary safety precautions.


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