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If you’re looking to get
started in the stock market without spending a fortune on
big-name companies or consult a high-priced broker, penny
stocks may be the investing solution for you. Penny stocks
require some solid thinking and a little bit of risk
taking but can bring huge dividends for a reasonable price
if you’re new to the game of investing.
Penny stocks aren’t always shares that sell for $.01. In
fact, they can be worth only a fraction of a cent at first
or they can hit the market at up to $5 a share. Usually,
they are shares of companies who are looking for funding
to get started or are looking to expand. This makes penny
stocks a fair risk since they may not grow beyond their
menial initial value. That’s where you have to make the
judgment about how long a penny stock can be stagnant
before you sell it.
These inexpensive bets are often in a competitive market
full of start-ups as new to the market as you are and are
usually small businesses without a lot of cash in the
bank. But they can mean huge payouts if you take them in
volume and they start to grow. If you invested $5 in a .05
stock, you could get 100 shares of that stock which means
that if the stock reached even $1, your shares are worth
$100. A 95% return on initial investment is not bad for a
first time trader. What if it got to $5?
There are a few things you can do to make sure you get the
most out of your penny stock investments. First, take a
long at the company’s business plan and model. Ask
yourself if their model can make them the most profitable
in their industry and whether it’s new or original. Penny
stocks only become serious if the company has a niche in
which to grow its profits.
Next, decide how much you can afford to invest in penny
stocks. Remember that penny stocks are usually unproven
companies testing the market for the first time and don’t
have the track record of established stocks, so don’t
commit your entire portfolio to them. Limit 25% of your
stock investments to penny stocks so that if none of them
work out, they are easy to get rid of and you can rebound
with more established stocks.
If a penny stock does
blossom, make it one of your main picks and put a little
bit more money into it.
Like all stocks, penny stocks have risks and anything can
happen. As a general rule, don’t hinge yourself on one
specific stock. Instead diversify with solid stocks and
the up-and-coming in a balance so that your money will be
safe no matter what the outcome.
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