Is Buying Penny Stocks Better Than Investing In A Mutual Fund?

by Jeff Walkman
 

Buying penny stocks is usually seen as a riskier option than investing in a mutual fund. There is some truth to this, but the comparison is like comparing apples and oranges. In this article we will take a look at the differences, benefits and drawbacks of both.
 
Firstly, what is a penny stock? Penny stocks are stocks that generally have a per share value of less than $5. Often penny stocks can be picked up for less than $1, sometimes as little as 10 cents per share.
 
Mutual funds on the other hand are not one specific investment type. Mutual funds are a cross section of investments, such as stocks, bonds, property and cash. Mutual funds are nothing more than a middle-man that pools investors' money together and then invests in a variety of items. Most mutual funds have a charter or prospectus that stipulates what percentage of investment funds will go where.
 
Mutual funds are favored by many investors because they give small investors access to the kinds of stocks and property that they would never have access to individually. Because the funds of many investors are pooled the middle-man has buying power.
 
The drawback of mutual funds is that, generally, there will not be huge jumps in profit because investment is in solid, slow-moving, blue-chip companies.
 
Penny stocks are a much more volatile investment than mutual funds. They are riskier. There are likely to be extreme highs and lows in the price. It is advisable, therefore, to either have the time to monitor these investments or get good advice and stock picks.
 
The benefit of buying penny stocks is also in their volatility. There is a greater opportunity to make large profits with penny stocks.
 

About the Author

Buying Penny Stocks doesn't have to be scary or risky, visit Jeff's website at http://www.PennyStocksBuyer.com
 

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