Benefits to Penny Stock Investments

There are many reasons as to why each investor should dedicate a portion of his or her portfolio to penny stocks. Investing 101 tells us that penny stocks and small cap stocks have consistently outperformed their larger rivals. When comparing historical stock quotes of penny stocks to large cap stocks, the return of penny stocks during bull markets is almost always greater than that of large caps.

Penny Stocks Have Everything to Gain

The largest benefit to penny stocks is that they have everything to gain and very little to lose. At the very base of the penny stock is a corporation that is likely only controlling a very small portion of the market for its particular product. A penny stock with a market reach of .05% of the overall market for its product still has the potential for 2000% growth, not including the organic growth in its particular market.

Consider this: if a penny stock has a .05% market saturation for a particular product in a market growing at 5% per year, the corporation has a possibility to grow 100 fold just on the organic growth of the marketplace. Compare this to a large cap stock with 40% market saturation, and the same is only worth a 12.5% growth rate. Which stock do you think would appreciate more quickly, that with a 500% growth rate or a 12.5% growth rate?  Chances are that the penny stock would win that bet.  

Penny Stocks Encounter More Volatility

Investors often shy away from good penny stocks, thinking that the volatility will be too much to handle. But without volatility, it would be impossible to turn profits. Can you imagine a market where stock quotes never change and the prices are set in stone? You'd be buying dividend yields rather than the companies themselves. In the case of penny stocks, volatility is your best asset. A good penny stock will shine through and break into a mid cap and then a large cap, and your portfolio will swell with the profits. A hot stock tip never stays low for long, and neither do quality penny stocks.

Buy More with Less

With all small cap and penny stocks, you'll be able to buy more stock with less amount of money, giving you more ownership in a small company that is likely to grow. Penny stocks are defined as stocks trading at prices less than $5 per share; with $500, you'd be able to buy 100 shares of $5 stock, or 20,000 shares of $.025 stock. Buying penny stock entitles you to greater percentage ownership in a company that is likely to grow. As it grows, you'll still hold the same percentage of the shares at an even greater stock price.

If you're looking to build a position in an up and coming stock, consider small cap or penny stock companies as a great way to buy a larger number of shares with less money. Today's penny stocks will likely be the leaders of the market 30 years from now. Though they haven't yet been discovered, there are still plenty of opportunities to grow your wealth as the company grows.