What are penny stocks, and more to the point, should they be a part of your retirement portfolio? Penny stocks are common shares of small public companies that trade at less than one dollar per share. Why so low? Generally, the company is relatively new and has just gone public.
Whether to invest in them or not is a hotly debated subject. Here are two ways to look at it: first, don’t you wish you would have bought up a bunch of such stocks when Whole Foods and Microsoft were just getting started?
On the other hand, you can’t predict what will happen to a new company in the next several years. If you are excited by the potential of penny stocks, follow these guidelines when you invest.
- Research websites and firms that sell penny stocks. Make sure they are of a flawless reputation as possible.
- Research the companies themselves. Do you see a lot of growth potential in the next five to ten years, based on their products and/or services and the market demand for them?
- Invest conservatively, say, no more than 5% of your portfolio.
As with investing with any individual stock, you need to do your due diligence and never put all of your eggs in one basket.