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Why you need penny stocks in your portfolio

by , 30 June 2015

If you invest in shares, do you hold any penny stocks? If you answered no, perhaps it's time to reconsider your decision.

So why should you include penny stocks in your portfolio?

Read on to find out why…

What are penny stocks?

Penny stocks are shares that tend to trade for less than R10 on the Johannesburg Stock Exchange. They’re the smaller companies of the stock market.

But don’t let the small size of a penny stock put your off. Small companies have lots of room to grow. And by selecting the best penny stocks out there, they can be extremely profitable investments.

Penny stocks encompass a vast number of different stocks. You can’t invest in any old penny stock and hope for the best. You need to weigh up a company’s future prospects.

Why invest in penny stocks

You want to hone in on the penny stocks that are well-established, making money, growing and are sitting at decent valuations.

Many of today’s younger companies are in new fields of technology that have bright futures ahead of them. By investing in penny stocks, you can potentially take advantage of this.

What makes penny stocks even more appealing is that fund managers tend to ignore these them. They have to concentrate on the larger companies on the market.

With their small size, penny stocks have the scope to grow and keep growing. And if a company manages to do this successfully, its share price will grow with it, making savvy penny stock investors richer along the way.

You only need to find one or two big winning penny stocks to make significant gains. The key is uncovering the ones with the best future potential and scope for profit.

As with any other investments, make sure you keep your penny stock portfolio diversified across different small-cap companies in different sectors.

So there you have it. Why you need penny stocks in your portfolio.

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Why you need penny stocks in your portfolio
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