You might have heard the term “penny stocks” in conversations with friends and family. You might have received email promising overnight riches with penny stocks. Perhaps you’ve even received a call from a telemarketer about the latest hot tip. While investing in penny stocks can potentially make you a fortune in a short amount of time, it is a very risky venture. In order to hedge the risk, you should follow certain tried and true strategies to help you keep your money safe.
When getting started with penny stocks, don’t rush. Read as much material as you can on penny stock investing. Before actually diving into a stock investment, you should understand as much as you possibly can about the subject. This will help you to avoid costly mistakes and even enable you to make a profit. Don’t reinvent the wheel. There is a lot of material available that chronicle other people’s mistakes. Internalize them.
Tip: Knowing your risk tolerance is vital. All investments carry some risk.
Second, investing in penny stocks is different from investing in other vehicles such as bonds, mutual funds, and real estate. While many general investment terms and concepts apply across many investments, penny stock investing has its own unique language. You should take the time to learn the jargon.
Third, never jump into trading with your own money. Learn the ropes of investing by paper trading. By doing so, you can generate a comfort level with investing in this high-risk arena without actually risking any real money. Paper trading will help you gain the confidence you need to enter the actual investment arena.
Tip: While it’s a great idea to be passionate about the market, make sure it doesn’t consume your life. Obsessing over your investments will only lead to frustration and burn-out.
Fourth, evaluate your goals and be clear about what you want to achieve. Do you want to engage in trading for short term profit? Do you want to fund your retirement? Or do you just want to experience the fun and thrill that buying and selling penny stocks can bring? Each of these requires a different strategy and mindset. When you’re clear with yourself about your goals, you can have a solid and focused trading strategy. If you don’t have a clear goal from the start, you can end up trying too many different things at once, yielding no profits at all.
Last, decide on how you plan on researching, monitoring, and trading your penny stocks. You might want to take on the challenge of trying to be a successful stock picker. Perhaps you’re the do-it-yourself type who likes to do his own research and come up with a custom methodology that is unique. Or perhaps you are serious about maximizing every penny and want to hire a professional to assist you with your investment ventures. Once you decide to hire someone or go out on your own, where do you plan on finding information about your potential investments? How do you plan on tracking your portfolio’s performance? Once you have an idea about accomplishing these items, you might just be ready to let your money ride.