Why penny stock investing could be the key to long-term riches

Julie Brownlee, Fsp Invest, 14 Nov. 2014

Tags: penny stocks, penny stock investing, investing in penny stocks, penny shares, why invest in penny stocks

Investing in penny stocks can be riskier than investing in more established companies on the stock market.

But with this extra risk comes the chance to make superior gains.

Imagine if you’d invested in Naspers when it was a tiny company. Think how your profits would have multiplied over the years!

So what should you bear in mind when investing in penny stocks? And what’s your best approach?

Let’s take a closer look…

How penny stocks can make you rich

In his recent book, The Future is Small, fund manager Gervais Williams revealed something rather interesting.

He noted that if you’d invested £1 in the UK in 1955 and reinvested your dividends, you’d now have £1,000. Not bad.

Now, if you’d invested £1 into the smallest 10% of stocks in the UK, you’d now have nearly £5,000!

This demonstrates the potential of boosting your returns by investing in penny stocks.

Small companies have the potential to generate large, rapid gains. Of course, with the ones that do very well, there are ones that flop, Matthew Partridge in Money Morning UK explains.

But if you’re prepared to do some digging, you can unearth the greats of tomorrow.

The share prices of penny stocks

If you invest in penny stocks, one thing you need to bear in mind is that many of these small-caps don’t trade very much. This can mean their share price stays the same for a period of time.

The spread (the difference between the buying and selling price) can also be wider than that of large companies. This means the stock has to move more than the spread for you to start making money.

This also makes them unsuitable for short-term trading.

And large buy or sell transactions can have a big effect on the share price.

How to approach investing in penny stocks

It’s a good idea to take a long-term view on investing in penny stocks. Studies show that less liquid shares tend to have higher longer-term rewards.

And this works for small companies too.

If you can devote the time to researching penny stocks, you could unearth some fantastic companies. And over time, they could generate you some huge gains.

So there you have it. Why penny stock investing could be the key to long-term riches.

*********** Hot off the press ************

Just follow these three easy steps, and you could quickly see big penny stock gains.

The three steps work in all markets. They work during any time of year. And they’re so simple to follow, you don’t need any special market skills.

Take a look at all three steps for free, right here.


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