Penny Stocks, Growth Stocks, and Getting Started

Penny Stocks, Growth Stocks, and Getting Started
  • Opening Intro -

    Investing in stocks is perhaps the most important decision that you will ever make with your finances. However, it is very important that you do your research first.

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Some stocks carry higher risks than others. For example, penny stocks, or stocks worth less than $5, are very risky. They can be a great start for people who currently don’t have much capital. However, they are very volatile and tend to produce black and white results. As a result, people either get rich from them rather quickly or end up with a bunch of worthless stocks.

Why Growth Stocks Are Better

Growth stocks are usually the better bet. The best growth stocks are growing rapidly and are expected to continue to do well.

They tend to be from very new fields, some of which may not have even existed in previous decades, such as cannabis or biotech. They are also connected to recurring high demand fields such as entertainment and transportation.

They are exclusively from the profit shares and don’t pay dividends. However, it depends on the specific company issuing the stock.

What Are Some Good Stocks for Beginners?

Investing may be overwhelming to those who are new to it. But you don’t need extensive Wall Street or MBA knowledge to do it. In fact, a nationwide contest for sixth graders was held in 2014.

The Math Minions of Oak Grove Lutheran in North Dakota outperformed everyone by one of the simplest principles. They invested in stocks of companies that they were already familiar with and knew had a good track record. They received a 22 percent return.

However, it’s important to remember that the Oak Grove Math Minions are the exception and that they outperformed numerous other schools. In fact, the first year is not usually the best predictor of how well you’ll actually do.

If you’re a beginner, it’s important to start with something that you’re more familiar with and that has good staying power. Walmart, for example, may be very tempting. However, while it may have lasted for decades and is still very popular now, there’s not really any telling as to whether it’s going to remain that way for the next decade.

An example of good staying power is something in the entertainment industry, such as Disney, Pixar, or a television channel that’s been around for many decades, such as ABC or some Sports Channels. If commercial entertainment is not your thing, something like transportation or popular healthcare organizations, such as St. Luke’s, is equally as good.

It is best for beginners to think in terms of very low risk, because most don’t have a lot of capital to start with.

Before You Start

Since it’s not without its risks, investing is not something you can afford to just plunge into. First, you need to ensure that you have all of your debts paid off. You need to make sure that you have an emergency fund for a minimum of three months in case you lose everything from your stocks to your job. Also, make sure that you can afford to save that money for at least the next three years. If not, you’re better off putting it in something like a CD.

We understand your eagerness and that’s good. However, if you still need to take care of any of the three above, it’s important not to put your finances and yourself at a blind risk.

other valuable tips:

When You Are Ready to Start

You will need to do a lot of comparison shopping with brokerages. A traditional or Roth IRA is usually a good starting point. They have many advantages that tend to grow nest eggs above most others. For example, in some cases, investments in a traditional IRA are not taxed until you withdraw it many years later. Whereas, for most Roth IRA’s, it’s the opposite, as long as you don’t withdraw it until you’re at least 60.

It’s always advisable not to put all of your eggs into one basket. If you do, you could lose it all. Instead, it’s better to divide between two to four stocks. That way, if one does well and the other doesn’t, you won’t risk losing everything.

Image Credit: growth stocks by Pixabay

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