Penny stocks have been around since the early 1900s, but you might have learned most of what you know from the popular Leonardo DiCaprio film The Wolf on Wall Street. Today we break down what penny stocks are and some things to remember when investing in penny stocks.
a brief History of Penny Stocks
Since the early 1900s, companies have broken down their stock and sold it for mere pennies. Today, especially with advancements of technology and a more complex world, penny stocks still exist. Penny stocks by definition are any stock that trades for less than $5 per share. After the 1929 stock market crash, the U.S. government decided to step in and increased regulations. Of course, with the introduction of the Internet, penny stocks became a way to "get rich quick" and investors spent thousands of dollars trading penny stocks. While some genuine companies started in penny stocks, true success stories are rare to find. Ultimately, it's a high-risk, high-rewards game to play.
common concerns and risks with penny stock investments
The biggest concern with penny stocks is their lack of liquidity. Often, it is harder to find company information for a penny stock company versus a company traded on Wall Street. That being said, your "high" return on a penny stock (keeping in mind each share is less than $5) also means there's a high risk of your stock dropping that much. The penny stock investor is someone who often enjoys high risk investments. When investing in penny stocks, ensure there is ample information available about the company before you invest. As always, consult your financial adviser if you have any questions.