Why the higher risks are worth it with penny shares

Julie Brownlee, Fsp Invest, 20 Nov. 2015

Tags: penny shares, investing in penny shares, shares, investing, risks of penny shares,

Penny shares are the smallest companies on the Johannesburg Stock Exchange trading for R10 or less.

Some investors don’t invest in penny shares as their higher risk puts them off. But if you fall into this camp, you could be missing out of great returns.

Read on to find out why penny shares are worth the risk…

Where penny shares fit in on the stock market

By investing in shares, you’re taking on more risk than if you put your money into bonds or a savings account. The stock market rewards you for taking this risk by paying you a premium.

Taking on the risks of the stock market isn’t for everyone and a lot will depend on your circumstances. For example, if you’re just about to retire and have the majority of your wealth in shares, you’ll no doubt worry about a stock market crash.

So if you invest in shares, where do penny shares fit in?

Let’s take a look at how penny shares perform. Historically penny shares outperform other shares on the stock market. This is known as the small company effect.

Why you should include penny shares in your portfolio

Academics show that penny shares perform 12 times better than larger company shares, Sean Keyes in Risk and Reward explains. And this all comes down to risk and reward.

Penny shares are riskier than their larger counterparts. They are more volatile, but they perform better over time.

This year’s Credit Suisse Investment Yearbook shows that penny shares have been the best asset class over the past few decades. Penny shares performed better than shares, bonds, gold and alternative investments.

By putting a portion of your investment pot into a diversified portfolio of penny shares, you could see fantastic returns over the years.

So there you have it. Why the higher risks are worth it with penny shares.

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