Penny Stocks- Good or Bad?

Penny Stocks- Good or Bad?

Penny stocks have plenty of admirable qualities about them. For many, they are investments that turn into quick fortunes. For others, they are expensive risks that are not taken for various reasons. In general, about one out of ten investors will make a great investment while the rest will lose everything. It’s this huge risk that makes many of us wonder why people are even willing to take the risk, and whether these are actually good investments or not. It’s funny how people are often willing to gamble with their investments when it comes to penny stocks. Let’s explore them a little more to figure out what they can do for you.

There is no exact definition for penny stocks. Some people consider them trades that are less than a certain dollar amount (i.e. $2.00 or less), while others have different rules for defining them. This lack of definition definitely gives us more examples to choose from when investing in this market. Penny stocks are also organized into three different categories for identification and classification. Price per share is one way. As stated above, there is no true definition for this. The SEC has a cutoff of $5.00 or less, while other companies and organizations have their own limits to this classification.

Another way to classify them is based on the market that they trade on. For example, shares that trade on particular markets are often lumped together as penny stocks, no matter their trade value. This is only used in some instances, but is the way that some people prefer to see them. That brings us to the final classification: market capitalization. This refers to the trade value of an entire company. Classifying penny stocks this way focuses on multiplying the value of each share by the number of outstanding shares to get the market capitalization.

So now that you have a little more help in identifying penny stocks, you need to decide whether they are good or bad investments. If you’re willing to take the risk, these stocks can offer great rewards. However, if you’re not so into risk-taking, you might want to stick with mutual funds or big-game stocks instead, where you are a little safer. It’s all about finding the investment vehicles that work best for your needs. Penny stocks can either be really great, or they can be a huge loss. It all depends on which ones you invest in, the timing of your investments, and the state of the market at that time.