Penny stocks sound like they would be just the thing for someone looking to start investing…but you should know that you cannot always buy or invest based on a low price. We can’t tell you if these stocks are right for you but we can tell you that they do not necessarily cost just one penny. In fact, The Motley Fool points out that “…penny stocks got a bad rap for being prohibitively expensive. In the old days, you’d pay as much as a quarter-point ($0.25) to buy or sell a share of stock… the commission made up a much bigger portion of your investment in penny stocks than it did on pricier shares.”
That was before the internet became what it is today. Now the term penny stocks can be used to refer to pricey stocks that are traded in markets that are not heavily regulated. Less oversight in these markets means that sometimes company executives take liberties that they might not otherwise take. This contributes to penny stocks having a less than stellar reputation, something you might not realize if you are an investment novice.
While there is nothing wrong with getting in to the stock market on your own, you might benefit from the counsel of a Fee-Only financial planner. Otherwise, you may invest in something like penny stocks thinking it will be a quick way to make a lot of money and not realize that some seasoned investors tend to avoid these stocks. Even when they don’t avoid them altogether, seasoned investors know that they should not expect to build their wealth on penny stocks alone.
While you may hear stories of people profiting greatly from penny stocks, be aware that this is not typical. It normally takes time and a thought-out investment strategy to really do well in the stock market.