Is investing in penny shares safe?

Fsp Invest Team, 17 May. 2013

Tags: penny shares, investing in penny shares, risks associated with penny shares, is investing in penny shares safe, diversification, diversified portfolio



Some investors say they want to invest in “sensible, retirement style shares” and some say want their portfolio to consist of about “two-thirds conservative stocks and one-third speculative stocks”. While this is all well and good, the bigger question is: Is there a way that you can invest and have a ‘safe’ investment portfolio at the same time? Read on to discover how to invest safely in penny shares…


Different investment products have a different level of risk allocated to them. For instance, single stock futures trading is regarded as highly risky, whereas equities are less so. Yet, even within the equities market, there are shares that are more risky than others.
And “penny shares are the most risky part of any stock market. If you invest in small companies without watching their progress, you’ll more than likely suffer losses,” warns Francois Joubert, Senior Analyst at Red Hot Penny Shares.
 
But, although prices for penny shares can be very volatile, if your penny shares are part of a balanced portfolio, can mean significant financial gains.

Is your portfolio safe? Here’s how you find out...

One of the most commonly practised forms of investor protection is to ensure your investment portfolio is well diversified, so spread your risk across the board.

A well diversified portfolio “includes investments whose returns behave in the opposite way from those of another. The net effect is lower volatility in returns,” explains Joubert.

There are different ways to diversify your portfolio, but the most common method is to “allocate a target percentage of your total investment portfolio to stocks, bonds and cash,” says Joubert. After this, you can assess the asset class before investigating the associated potential risks and rewards.

Also keep your investment portfolio small and you’ll be safer even in times of volatility. “I like to have between six and ten shares in my personal portfolio at any one time. That way I can allocate more cash to each share and maximise my profits,” says Joubert.

Here’s how you can manage your investment risk

As a penny share investor, you should always keep in mind that risk is present in investing. Although risk can’t be eliminated, it can be managed.

So keep these three points in mind when considering the diversification of your portfolio:

1.    Diversification can protect you against risks from a single stock or bond, but not against market and inflation risks.
2.    “Shares have historically offered the highest annual return, but with substantial short-term risk,” says Joubert.
3.    Time has a moderating influence on stock and bond market risk. The longer you hold an investment, the more likely it is to earn a positive return.

Remember that diversification doesn’t remove risk from market movement caused by investor perceptions. But a well maintained investment portfolio between speculative, medium-risk and conservative stocks is key to any investors’ success.

Related QA

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jchiosa asked:
hey guys, i am subscribed to pennyshares. end of last month, didn't receive any communication from you guys. login at fspinvest.co.za does not [read more]
Published at 08 Aug. 2017 in: Penny Shares Francois joubert --- your neck on the line here. 1 Answer
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philrina asked:
Is Francois out of the office / overloaded or simply not interested as he does not answer the questions that I have put to him on 13/6/2017 and my [read more]
Published at 29 Jun. 2017 in: Penny Shares Selling ? holding 2 answers
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vmtimde asked:
HI Francois Please assist me in cancelling my subscription to pay monthly for red hot penny shares. I am not interested anymore. Kind [read more]
Published at 11 May. 2017 in: Penny Shares Cancel debit order 2 answers
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oliviees asked:
Dear Francois, According to the April 2017 RHPS newsletter one of the companies recommended as a buy is ‘Anchor Group’. With the sharp drop in [read more]
Published at 06 Apr. 2017 in: Penny Shares Buy decision 2 answers
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Fielix asked:
Hi Francois, Prescient's share price dropped from 100c to 22c very suddenly. Can you please explain what happened, and if we should still hold on to [read more]
Published at 07 Mar. 2017 in: Penny Shares 1 Answer

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