Categorized | Finance and Money

Penny Stocks – Are They Worth The Effort?

Posted on 29 January 2011

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The past few years have put a real damper on many investors’ portfolios. Many individuals and families sacrificed for as much as twenty years so that they could properly save for their retirement. Despite their hard work and dedication, many people simply will not have enough money to retire comfortably as planned. As such, some people are searching for alternative ways to increase their portfolio income. One of the most popular techniques investors are using to make quick profits is penny stock investing. While it is certainly true that investors can earn decent returns by investing in penny stocks, is it worth the effort?

Penny stocks are generally those companies that have stocks that trade for less than $1 per share. These speculative investments typically trade on what most people refer to as the pink sheets. Companies that are listed on the pink sheets are not the type of investments most financial planners would encourage their clients to invest in.

The primary concern when looking for the best penny stocks to buy is the overall lack of information that is available about the company. Typically, companies that trade on the pink sheets are not required to submit audited financial statements to the Security and Exchange Commission. As such, it falls squarely upon the shoulders on the investor to properly analyze the company’s balance sheet and income statement.

Another issue surrounding penny stocks is the inherent lack of liquidity that many of these stocks usually encounter. Liquidity issues can actually be more devastating to an investor’s portfolio that the lack of information. As a penny stock’s share price begins to decline there are simply not enough buyers to satisfy the execution order. As a result, if you own penny stocks that are drastically falling in value you may end up being forced to keep it.

Despite these additional risks, investing in penny stocks can be extremely lucrative. Since the price per share is so low, an investor can purchase thousands, or even millions, of shares of stock. If the price increases even slightly, the investor stands to profit handsomely.

In general, penny stocks add an increased amount of risk and require a lot more research than a larger company might. For those with higher than average risk tolerance levels, however, penny stocks may provide just the boost their portfolio needs. To help you make a more informed decision, check out the helpful investment tools found at gigascanner.com.

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