Do You Know Whether A Penny Stock Index Exists?

You may have heard of ETF's or Exchange Traded Funds, but they are primarily related to the larger-priced shares, when you hear them mentioned. The first thing you need to know is that there is a penny stock index fund-in fact, there are a few of them you can invest in. While they may not be the most popular for long-term investors seeking dividends, they are popular for those that want to diversify and invest in smaller-cost shares, commonly known as Micro-cap, Nano shares or penny stocks. They are normally traded under $5 per share, when purchased individually, but as a penny stock index, the range can be fractions of a cent, up to $10.

• Advantages of the penny stock index ETFs:

  Regardless of what you call them or how much the shares are in the portfolio, it offers an option for those that don't have the time to do the research required to invest in the most speculative shares. You can buy shares in an ETF that invests in the penny stock index, just like you do with larger-share indexes. The main advantages include knowledgeable funds managers, diversification and you don't have to research and keep track of a bunch of different cheap stocks.

• Disadvantages of the penny stock index ETFs:

  Some people don't like to feel out of control, when it comes to choosing stocks they invest in. Unless you have read a lot of eBooks about investing in micro-caps or had plenty of video tutorials on trading them, you may not know what makes these shares so risky or realize that stock-picking software exists.

  You may have heard you can quickly double, triple or quadruple your investment in a few days, but a penny stock index ETF is not going to make you rich, overnight. In fact, unless you live and breathe the penny stock market, you have little chance of hitting on the next big winner, unless you have the time to do the research or know when to buy and sell these highly-volatile shares. You can expect steady yields that are reasonable, because they are diversified, however.

• Different needs for different investors:
  

  The penny stock index ETFs meet a certain need for investors that want to diversify their portfolios. They are best suited to those that prefer solid returns on a certain percentage of their investing portfolio. For example, some experts on micro-caps say you should only invest 20% of your funds in penny stocks, but others say you should only invest money you can afford to lose.

  The best way to look at the penny stock index ETFs are to consider them the less-risky of the riskier directions you can take, but they are possibly more rewarding than the highly-speculative options available for investing your funds. You can always decide to trade a few hand-picked penny stocks that you have researched, since most discount brokerage accounts offer you the option to do both! It's a matter of deciding whether you prefer the ease and convenience of the penny stock index ETFs or you prefer the riskier and more tedious hand-picked stock purchasing options.