After finally paying off all of those credit cards, you are able to get some money back into the bank. Interest rates are atrocious and you have the desire to put that money to work for you and get to retirement a little quicker. Penny stocks are something that often looks very attractive to a new investor because of their low cost, but you have to be careful.
Penny stocks are some of the most volatile stocks around. They have low buy in prices per share, but then tend to go up and down throughout the day. To add to the lure, there are hundreds of sites on the Internet that tout their ability to be able to point out the penny stocks that are going to take off. They show success after success, but they fail to list the hundreds of stocks that they put an alert on that never paid off.
A typical example of the dangers of investing in penny stocks happened earlier this year with SPNG. This is a company that offers pre-soaped sponges for cars, pets and many other uses. News started hitting the web about them because they were landing deals with sports teams to advertise and also started selling some major wholesalers on distribution.
The stock had been hanging around $.04 for what seemed forever and then with all of this news, it started to creep up. Over the course of a few weeks, the stock popped a couple of times before settling around $.08. The following week the stock went up to about $.13 and people started to take notice. Then came the fateful afternoon.
Literally, in a matter of minutes, the stock went from about $.15 all the way up to $.28. An investor that got in on the beginning of this would have made 7x their money if they cashed it out at the right time, but that window only lasted for about 3 minutes. The stock no sooner peaked than it bottomed out again. It has never recovered and as of this posting, it was sitting at $.045.
Can you make money on penny stocks? You can if you can stay glued to your computer all day. More likely is the fact that you will take a beating on them and wonder why you ever got involved in the stock market in the first place. There are far better ways to invest you cash than messing around with volatile penny stocks.