Want to invest in penny stocks, but not sure how? Here’s what you can do…

Julie Brownlee, Fsp Invest, 20 Jan. 2015

Tags: penny stocks, investing in penny stocks, how to invest in penny stocks, small-caps, small-cap funds,

Whether you’re new to investing or have more experience, penny stocks are one area of the stock market that many investors find intriguing.

They have the potential to make you a lot of money in a short space of time, but you could also make some bad stock picks and end up losing much of your investment.

So if you want to invest in penny stocks, how should you go about it?

Read on to find out…

The exciting world of penny stocks

Investing in penny stocks is harder than it first appears. There are some that become big winners, but there are others that do nothing or flop.

Yet penny stocks do outperform large-caps over time. So putting some of your cash into penny stocks can make you money.

But you have to do it right, Dr David Eifrig in Daily Wealth explains. And the best way to do this is with a diversified basket of penny stocks.

A study by economists Eugene Fama and Kenneth French showed this. Their research showed that penny stocks make a lot more money for investors over the long-term.

The thing that puts many investors off is the volatility that comes with investing in penny stock. But if you take a longer-term view, say a minimum of ten-years, this volatility reduces.

How to start investing in penny stocks

The key to successfully investing in penny stocks comes down to picking ones that look good to perform well in the future.

This of course is the hard part. But if you want to gain exposure to penny stocks in your portfolio, a good starting point is a good small-cap fund.

Have a look at the different unit trusts based on small-caps. Look at their performance and fees and you can make a decision from there.

Your portfolio might thank you for it over the long-term.

So there you have it, how you can invest in penny stocks.

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