Are Penny Stocks Any Good?

Penny Stocks (stocks that trade for less than $5.00 per share) are, for some people, an exciting investment. Because Penny Stocks are so “cheap,” many people mistakenly believe that they are more likely to be bargains. The reasoning is simple: they can cap losses at less than $5.00 per share, but their upside is unlimited.

This may sound appealing, but in reality, it is a dangerous line of reasoning. Penny stocks are far from a sure thing. Remember, there is a reason that the stock price has dropped so low. The company may have a high debt load, or corporate management may have guided the enterprise down the wrong path. Whatever the reason, other people (including professional investors) have acknowledged that the company is high risk, and have punished shareholders by driving down the stock price. It is always important to keep this in mind.

There are other considerations associated with penny stock investing besides the risk factors. One of these is the cost of trades. Trading costs (as a percentage of the total trade) tend to be above average for penny stock orders. Let’s say I buy 100 shares of a penny stock at $1.00 per share. The total cost is $100, and I pay a $10 charge for the trade. My trading costs are 10% of my total investment. In this situation, the trading costs can have a significant impact on your expected return. But let’s say that instead, I buy 100 shares of a more established stock for $50 per share, for a total investment of $5,000. Now my $10 trading cost is only 0.2% of my total investment. Simply put, you can reduce your overall trading expense by minimizing your exposure to penny stocks.

Finally, penny stocks often carry the risk of less public information. Many penny stocks are specialized companies that conduct proprietary or discreet operations. This is not necessarily a bad thing, but it does create a challenge in evaluating the company. Not having a clear understanding of a business model makes it much harder to invest intelligently.

While it is true that some penny stocks may be good opportunities, they are generally not appropriate for an inexperienced investor. If you do choose to invest in penny stocks, make sure to understand the risks and additional costs, and do your homework. Most importantly, do not invest more than you can afford to lose.

This post was contributed by Vik Tantry of www.kanjoh.com

Credit or Debit? Which Card Makes More Financial Sense?

We’ve reached a stage where our lives are dominated by pieces of plastic – credit cards are a regular feature of every transaction and purchase. Some people swear by it, but others are wary as it ends up putting them in a deep hole of debt. The latter prefer debit cards which work a little differently but which are able to keep you out of debt because you need to have money in the bank to use them. Credit or debit, both cards have their pros and cons, and how you choose to use either depends on your spending habits and personal preferences. In general:

You’re better off using credit cards if:

* You’re looking to build up a good credit rating
* You’re responsible with paying bills on time
* You pay off your entire bill amount every month instead of just the minimum amount due
* You carry more than one card and are able to compartmentalize your purchases according to work, personal, travel or similar categories, and pay off all the cards each month
* You’re looking for borrowed cash every month without having to pay an interest. You get to keep the money you have, and pay back your bills with your next salary.
* You want to keep track of your purchases.
* You want the incentives and gifts that credit card companies offer.
* You are aware of the APR, grace period and other terms of service before you sign up.
* You never use it for a cash advance – this transaction carries a high interest rate which kicks in immediately.
* You take advantage of co-branded cards where you get points for spending at their outlets.
* You are careless with your cards – while a debit card can be used to steal your money if it falls into the wrong hands, a credit card is more secure in that you can report it when it gets stolen and cut your losses. However, you can minimize your losses to $50 if you report your card or PIN as stolen within two days of discovering the theft.

You’re better off using a debit card if:

* You tend to splurge without a thought for the morrow when you go shopping.
* You cannot seem to pay your credit card bills on time and end up paying an interest every month
* Your credit card debt is accumulating exponentially
* You’ve had bad experiences with your credit cards
* You need to withdraw cash from your account at the ATM
* You are careful with your card and your PIN. Ensure that no one is watching when you swipe your card and enter your PIN when purchasing something.
* You’re using it to teach your child good spending habits.

At the end of the day, it’s your temperament, responsibility quotient and buying tendencies that count when you choose either a debit or credit card. Some people opt to carry both and enjoy the best of both worlds, so if you’re level-headed and understand the way both cards work, you could do it too.

This post was contributed by Kimberly Peterson, who writes about online accounting degrees. She welcomes your feedback at KimPeterson2006 at gmail.com