Tremag

Penny stocks can be defined in two ways. They can be taken to mean those stocks that trade below a certain share price, or they can be stocks that are not traded on one of the internationally known major stock markets, like NASDAQ or the New York Stock Exchange. According to some definitions,  the top penny stocks are those stocks that trade under $10, while some others say it is stocks with prices under $5. Regardless of which definition one chooses to go by, one thing is certain, they are stocks that a majority of the people can afford to trade in.

Penny stocks are one of the riskiest investments of all possible types of stock investments. Companies with penny stocks, unlike the large corporations, have limited number of shareholders and any change in the demand of their stock can sent it skyrocketing or crashing. This is exactly why investors are attracted to them – they offer a lot of excitement for a nominal investment. There is the chance of the share price doubling or tripling in a very short amount of time. Also, for the investor who can only afford a few shares on the large exchanges it has a psychological effect on being able to buy shares by the thousands for a few hundred dollars only.

Penny stocks have a different set of risks as compared to their bigger counterparts. First of all, they do not have the same liquidity as that of stocks of larger companies. If one decides to sell their penny stock one fine day, they may suddenly find that the demand for that particular stock no longer exists. Additionally, it is usually difficult to research these stocks because very little information is available on these companies. Finally, the accounting standards practiced by some of these companies are not necessarily as rigorous as those practiced by larger companies noted on the major stock exchanges. Another drawback of the penny stock is that they are traded thinly, at times weeks and even months pass without a single trade being carried out.

Penny stocks are generally new companies putting out new products. When established, these stocks, too, will move on to one of the major markets. Most of the publicly traded companies currently trading on the major stock exchanges were at one time penny stocks listed on the Pink Sheets or Bulletin Board at one time. However, one still has to be careful and avoid mistakes when investing in penny stock listed on pink sheets and Over the Counter Big Board.

While it might be made to appear that penny stocks outperform real estate on a regular basis, this is rarely true. Investors quickly take notice when a penny stock that trades at ten cents a share goes up to thirty cents in one week. A more expensive share selling for $50 a share will have to go up to $150 to appreciate by the same percentage value, and the chances of this happening are almost non-existent. So one can easily see why the claim “penny stocks outperforms the stock market” is easy to make. The other side of the coin is that the chances of a $50 share, or real estate for that matter, dropping to zero is extremely unlikely. With a penny stock, this is always a strong possibility.

Many people wonder if investing in penny stocks is dangerous or unwise. The reality is that all investing is risky, no matter what stocks you buy. Even long-time blue chip stocks lose value or even go out of business, so as soon as one realizes that investing carries risk, one realizes that investing in penny stocks is essentially no different than any other kind of investing.

In these difficult economic times, many people are finding that the belt tightening that they have to do is actually working wonders for their money management skills. “No one likes to suck it in, but great money management skills allow for even better living when the crisis passes,” says one CPA.

Below are some tips on how to manage your money, whether you are in dire financial straits or you have plenty of discretionary funds, because no matter how much money you have, the basics of good money management remain the same.

– Pay yourself first.

Before bills, before taxes, before money owed to creditors, always set aside money in savings for yourself. The benefit here is both monetary and psychological. Fiscally your savings will grow, whether those savings are your emergency account or an investment account. Psychologically, you will perceive that your good money management is actually paying off.

You should consider this payment to yourself a bill in the same way that an electric bill is a bill. This is the money that will comprise your wealth and protect you from emergencies, and should only be used to work for you.

– Put money to work for you.

Money has two uses: To be spent and to be invested. The money that you save for yourself should begin working for you immediately to make your life better.

The concept of residual income is one that is not touched on enough in mainstream economic culture; however, this is exactly what the money that you set aside should be doing for you. Residual or passive income is the basis of wealth. There are many ways to change a savings account into a residual income account.

- Buy dividend bearing stocks (reinvest in the stock until retirement, then the dividend can be taken as cash)
- Put the money into long term high interest bearing accounts (annuities, HSAs, CDs)
- Buy a business that runs itself (anything from vending machines to a restaurant or retail franchise)

– Pay down debt in a snowball fashion.

You should pay down debts from smallest to largest, so that you can feel the sense of accomplishment that comes with paying back a debt in full. This is a technique that famous money maverick Dave Ramsey advises.

– Learn to invest.

What investment means, whether you are rich or poor, is learning how to pay upfront fully for a service that will save you money in the long run. For example, buying a $500 espresso machine instead of having a coffee out every day ($1200 / yr) is a good investment.

Invest in things that make your life easier and save you money. A good place to begin is with the Internet, researching new gadgets with technologies that make expensive things obsolete.

- Pay off credit cards in full every month.

The credit card is not something on which to hold balances. Get into the habit of paying off that bill every month. If it is simply too much, pay $100 over the minimum payment every month. Paying the minimum is guaranteed to have you paying much, much more than you should on your credit card. If you are not satisfied with your credit card company, apply for 0% Balance Transfer Credit Cards from credit card companies that you will enjoy to work with.

- Separate payment and discretionary accounts.

Put the money that you pay bills with into one account and any extra money into another account so that you never spend the rent money frivolously. This is the cause of many a late payment on a bill or a credit card, which only compounds the problem with interest and late fees.