Affordable or penny stocks are a risky investment, especially if you plan on putting a larger sum of money into them.
In order to ensure you get a return on your investment instead of losing money, follow these few simple steps in order to see if the penny stock you have chosen is actually going to increase your portfolio or simply put you in the hole.
Check the current stock market. An affordable stock is often considered a stock that is under $10 a share. Watch the stocks that are currently selling for under $10 or even $5 and follow the ones that have a significant percentage increase.
Watch the market for a few days to see if the particular stock you have chosen to watch is going to be profitable in the long run and don’t forget to check out what started the increase in the first place. Some common stock exchange markets you can watch are the NYSE, the NASDAQ and the AMEX.
Second you should definitely check into the company and their history. Is the company equipped to make it through the next few years, especially in a bad economy? Are there multiple debts piled on the company’s balance sheet?
If the company is financially solid, then much of your work is already done for you. Don’t just look in one place however, check in as many places as possible to find out about the company you are planning to invest in.
One particular Penny Stock company suggests also that you check into the analysts’ ratings. If there are no ratings, or even bad ratings on the particular company you are planning on investing in, you may want to think twice.
That same penny stock company also suggests that you check the institutional ownership of the company. The reason they give for this is that, if a brokerage company owns a large chunk of the company you are planning on investing in, they will probably be more willing to push it to succeed.
Another great piece of advice when investing in affordable stock is that the company you are purchasing stock from must be easy to understand.
Is the company you plan to purchase from inventing new technology, do they have a large consumer base, and are they performing their overall purpose as a company? Are they a brand new company or have they been around for a few years? Do they have staying power on the market?
After researching the company, the stock market prices, and the consumer base you may be ready to purchase your stocks.
Many companies recommend buying from 4 to 6 different penny stocks so you may have to do research on more than one company. They also recommend not spending more than 15 percent of your total investment dollars on these penny stocks.
Purchasing affordable stock is easy as long as you do your research. It can yield high returns or put you in the money ditch.
Just be sure to take it slow and learn as you go, especially if this is your first time investing in penny stocks or the stock market in general.