Is it smart to buy penny stocks?
Penny stocks are among the market's most dangerous stocks, so you may pay a much greater price than you first expect, including potentially losing all of your investment. Here's what a penny stock is and why it's so risky to investors looking to grow their wealth.
Penny stocks come with high risks and the potential for above-average returns, and investing in them requires care and caution. Because of their inherent risks, few full-service brokerages even offer penny stocks to their clients.
Earning a living solely by buying and selling penny stocks is highly risky and not advisable for most people. Penny stocks are typically low-priced stocks of small companies, which can be highly volatile and speculative. They often lack the financial stability and regulatory oversight of larger stocks.
Investing $1 a day not only allows you to start taking advantage of compound interest. It also helps you to get comfortable with investing and develop the habit of putting your money to work for you. As you can see, that single dollar can make a huge difference in helping you to become more financially secure.
Still, the potential to make large returns is a strong allure, driving risk-taking investors into taking positions in these securities. Though many penny stocks go bust, if an investor exercises careful fundamental analysis and picks sound management teams, they could find the coveted diamond in the rough.
Penny stocks tend to be much riskier than other stocks.
Plus, they are often shares of unproven companies, where there's a very real risk of losing your entire investment. In other words, they simply are not worth buying for most people who want to invest in the market to take a reasonable risk and build wealth.
- Sunshine Capital Ltd. ...
- Standard Capital Markets Ltd. ...
- G G Engineering Ltd. ...
- Globe Textiles (India) Ltd. ...
- Growington Ventures India Ltd. ...
- Aakash Exploration Services Ltd. ...
- Debock Industries Ltd. ...
- Kenvi Jewels Ltd.
Apple (NASDAQ:AAPL), Ford Motor (NYSE:F), Advanced Micro Devices (NASDAQ:AMD) and even Novavax (NASDAQ:NVAX) were all former penny stocks, too. In short, find the top penny stocks to buy, and you can make a fortune. Unfortunately, when it comes to top penny stocks to buy, there are also plenty of horrors.
- BTG2.860.12% B2Gold Corp.
- NKLA1.020.07% Nikola Corporation.
- OCGN1.830.32% Ocugen, Inc.
- MDIA3.882.48% MediaCo Holding Inc.
- LTNC0.010.00% Labor Smart, Inc.
- HCMC0.000.00% Healthier Choices Management Corp.
- AITX0.000.00% Artificial Intelligence Technology Solutions Inc.
- JAGX0.080.01%
Penny stocks are legal, but they are often manipulated. Penny stocks get their name because of their low share price. Any stock trading below $5 a share is generally considered a penny stock.
Is $100 too little to invest?
The most common pushback I receive when encouraging people to invest is, “I can't afford it.” Many people live paycheck to paycheck and feel investing requires significant funds they don't have. However, that couldn't be further from the truth. You can start investing with as little as $100 per month.
It may seem like $100 isn't a lot of money to invest in the stock market. But over time, you can add to that total and grow your stake in a business. Investing even a small amount is a good way to at least get your feet wet and slowly gain some exposure to a stock without going all-in right away.
Investing just $100 a month can actually do a whole lot to help you grow rich over time. In fact, the table below shows how much your $100 monthly investment could turn into over time, assuming you earn a 10% average annual return.
While it's possible to make a lot of money, it's also very possible to lose a significant portion of your investment. The potential returns from penny stocks can vary widely, with some investors experiencing substantial gains while others lose everything.
Yes, you can make money with penny stocks, but you can also make money playing the lottery, though you probably won't. To make money in penny stocks, you have to be able to separate the good companies from the bad, and that means you have to be able to analyze companies.
Some companies, such as Amazon (AMZN) originated as penny stocks but later grew into sizable blue-chip companies.
In a best-case scenario, a penny stock has likely significantly underperformed the expectations of company management or it wouldn't be trading at such a low share price in the first place. These types of companies can always rebound, but an underperforming company isn't an ideal investment.
Penny stocks typically have a high failure rate due to their speculative nature and limited financial information. Success rates are low, with many companies going bankrupt. Investors should consider selling penny stocks when they achieve their target gains or if the company's fundamentals deteriorate.
Some professionals recommend that you devote no more than 10% of your individual stock holdings to penny stocks. It's also important to understand your risk tolerance. Generally speaking, the higher your risk tolerance, the more equipped you are to take on the risk that can come with investing in penny stocks.
Company | CMP (Rs) | Sales CAGR (3 yrs, %) |
---|---|---|
BRONZE INFRA | 1.0 | 1,119.9% |
SPARC SYSTEM | 19.9 | 916.9% |
SEACOAST SHIPPING SERVICES | 4.2 | 835.7% |
SHREE GLOBAL TRADE | 35.3 | 774.7% |
Are penny stocks riskier?
The main thing you have to know about penny and micro stocks is that they are much riskier than regular stocks. Taking a penny stock is one of the riskier decisions that first-time investors often make.
Finding a website that lists penny stocks is only a starting point. A good place to start is Wall Street Survivor's Investing Ideas page which lists various penny stocks. Another option is to use MSN's Stock Screener which allows you to filter stocks based on desired criteria like price per share.
The biggest recent penny stock success story is GameStop Corp. (NYSE: GME). Back in 2020, GameStop was a penny stock… In 2021, it went supernova on one of the greatest short squeezes of all time.
- Vikas Ecotech Ltd.
- Comfort Intech Ltd.
- Rajnandini Metal Ltd.
- G G Engineering Ltd.
- Indian Infotech & Software Ltd.
- Genpharmasec Ltd.
- Accuracy Shipping Ltd.
- Goyal Aluminiums Ltd.
- Coca-Cola. (NASDAQ: KO) ...
- Altria. (NASDAQ: MO) ...
- Amazon.com. (NASDAQ: AMZN) ...
- Celgene. (NASDAQ: CELG) ...
- Apple. (NASDAQ: AAPL) ...
- Alphabet. (NASDAQ:GOOG) ...
- Gilead Sciences. (NASDAQ: GILD) ...
- Microsoft. (NASDAQ: MSFT)
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