Why 2022 is the year you should swear to give up on penny stocks for good

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PEnny stocks may seem like an affordable investment option for people who don’t have a lot of money to invest. After all, penny stocks are priced under $ 5 per share, so even if you only have a little cash, you should be able to buy just about any penny stock that interests you.

The reality, however, is that these stocks are almost always a high risk investment with a very low chance of a generous return. And now there is a better solution for those who don’t have large investment account balances, so there is every reason to forgo penny stocks forever in 2022.

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Why you should avoid penny stocks

Penny stocks can seem like an affordable way to start investing in stocks. But the reality is that the shares of these companies often cost so little for good reason.

While some penny stocks are simply unproven businesses that haven’t had a chance to grow yet, others are used as part of pump-and-dump programs by unscrupulous individuals who create a hype. around untested companies to drive up the share price. They then sell their stocks for a quick profit while letting subsequent investors hold the bag.

It can be difficult to tell which penny stocks are rough diamonds and which aren’t even worth their meager stock price because these low-valued stocks are not traded on the stock exchange and therefore are not as tightly regulated as companies. that trade on the New York Stock Exchange or the Nasdaq. They don’t have to follow the same reporting requirements, and company information may not be widely available or 100% accurate.

And even in the best-case scenario, when you think you’ve found a high quality penny stock, it can be difficult to trade it because these companies aren’t listed on the major stock exchanges and there isn’t as much demand from buyers. for them.

The challenges of finding, buying and selling penny stocks combine to mean that trading in these assets is just not worth it.

What to invest in instead

If you don’t have a lot of money to invest, it can be frustrating to hear that you should swear to ditch penny stocks because they can be one of the few stocks that you find affordable. After all, if you have $ 10 or $ 20 that you want to put on the market and most publicly traded companies have a share price well above that amount, you may feel completely left out of stock trading. .

The good news is that a small account balance is no longer a reason to invest in penny stocks, as you can buy fractional stocks instead.

Fractions of shares are available from a growing number of brokerage firms, many of which allow you to buy partial shares regardless of the share price as long as you meet their low minimum purchase requirements. These requirements are easy to meet, with some brokers allowing you to execute trades with trade values ​​as low as a dime as long as you buy 0.001 or more of a stock.

With fractional shares, if you have $ 10 to invest, you can choose to buy 1/10 of a stock that sells for $ 100 per share, or 1/100 of a company that sells for 1,000. $ the share, and so on. This opens the door to purchase any the investment you want, including reputable companies that trade on major stock exchanges.

So instead of buying penny stocks in 2022 and beyond, opt for fractional shares of trusted companies instead. You have a much better chance of investing successfully with this approach.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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