By michael vivar
By most expert accounts, the American economy has been steadily improving over the past four years. The country is almost academically at full employment.
Conversely, though a majority of Americans are working, compensation hasn't kept up with cost of living for decades. It's advisable to supplement income with investments.
One financial instrument for possible speculation is the penny stock. Here's a brief primer and some tips on how to approach these investments.
Penny stocks are traded in online exchanges like the OTCBB. They used to literally cost pennies a share. Now it refers to shares of companies that trade for $5.00 or less.
Some new companies with untested pedigrees are unable to qualify for loans or venture capital. Thus, they sell shares of their endeavor at ultra-low prices to build liquidity.
The relatively low cost of entry is attractive to the beginner and/or casual investor. Additionally, if the core venture is successful, wild profits can be reaped.
The reason many entrepreneurs offer penny stocks is their ventures are risky. A majority of these companies either languor or fail resulting in fallow or losing investments.
Any investment requires research. This is even more applicable to penny stocks because of volatility. Beware of any company that doesn't offer at least a cursory prospectus.
The low stock value means fluctuations of even a percentage of a percent can wildly swing investment performance. As it's said, don't put all eggs in one basket.
This can't be emphasized too much. Penny stocks should be part of a larger portfolio that includes blue chip companies, government bonds and commodities.
The lax regulation of the penny stock market makes the environment vulnerable to scammers. Keep tabs on investments via financial news outlets or, if possible, LexisNexis.