Why Invest in Penny Stocks?

Penny stock investing can be dangerous, but also very rewarding if you find the next hot stock. Remember, the giant companies of today all started mostly as penny stocks. Finding a good company when it's trading for just a few cents per share and holding it for decades proves to be extremely profitable. Altria, formerly known as Phillip Morris, is one of the best performing penny stocks of all time, while paying the highest dividend yields in history. While most penny stocks turn out to be unprofitable and eventually succumb to be total flops, many make it out of the small business world and become the future corporate giants.

Penny Stocks Aren't Dangerous by Nature

Penny stock investing doesn't have to be risky. There are many small regional firms that are performing very well, but are not big enough to be on the radar of large investors. Although these companies have strong financials, expansion requires capital, and they need rising stock prices to lift their business and to make money for their investors.

There are many inherent benefits to investing in penny stocks outlined below. Contrary to popular belief, you don't need to take on huge risks to get into penny stocks. Here's why penny stock investing should be on your radar as a great way to make money in the stock market.

Penny Stocks Have Room to Grow

Because they usually operate with a very small share of the market for their particular product, penny stocks have plenty of room to grow, and thus, can make outstanding investments. Consider more established businesses, such as Target or WalMart, which have little room to grow their businesses; the possibility for growth is limited by the fact that there is only so much geographic area to cover with their new stores. A smaller chain has the ability to grow tremendously because it only currently covers a small area or a small segment of the market, thus they enjoy more room to grow both in marketshare and stock prices.

Penny Stocks Let You Buy More for Less

If you were to get in on the early days of McDonalds, .1% of the business could have been purchased for about $110,000. Today, that would be worth about 670 times that amount. With penny stocks, you'll be able to buy large amounts of stock for very small amounts of money, and if the business takes off, you'll become extremely wealthy in the process. A penny stock worth $200 million overall market cap, in a market that could produce $20 billion in profits per year, is a great investment. As that stock grows, it could largely dominate the marketplace, and as a result, turn a thousand dollar investment into a million.

Smaller Stocks Produce Better Returns than Large Caps

Small cap stocks and penny stocks have produced returns that far exceed that of large cap stocks over the long run. Why not put the odds on your side and  consider placing 5% of your portfolio into some decent penny stock names?  If even one of those penny stocks proves to perform well, that 5% investment may produce returns that trump the returns on the remaining 95%.