Are pennystocks less risky than blue chip stocks?
The main thing you have to know about penny and
If you are willing to take risks for quick gains, penny stocks are great for you. However, blue-chip stocks may be the right investment choice for you if you have a low-risk appetite and want stability. Based on your risk appetite and your investment goals, you can choose the one that suits you best.
And if they're small enough, the Securities and Exchange Commission (SEC) doesn't require financial disclosure, either. All of these factors make penny stocks much more risky than an exchange-listed stock, which means you'll need to have a high risk tolerance to invest.
Penny stocks are generally riskier than other investments, and early success can (paradoxically) lead to big losses. On the other hand, blue chip investments are well-established companies with attractive business prospects. Penny stocks vs blue chip stocks is an easy comparison. Let's take a look at the reasons why.
Blue chip stocks are usually less risky and thus considered safer than other stock-based investment options. That's because one of the major determining factors of a blue chip stock is that it must be a well-capitalized company, meaning it should have the financial fortitude to endure an inevitable economic downturn.
It is possible to make money with penny stocks. Then again, it's technically possible to make money with any type of stock. Successful investors usually focus on the potential for their stock picks, regardless of price, to gain value over the long term. There are plenty of good reasons to invest in small companies.
By investing in blue chips, your investment is more likely to bring good returns and relatively low risk. Blue chips tend to have higher dividend yields, which can provide more income without selling the stock. They also tend to be less risky because their performance is more predictable than other stocks.
Investors who like penny stocks perceive them as having several attractive features: the low stock price, which allows investors to buy a relatively large number of shares, and the potential for quick gains." Some penny stock investors may buy tens of thousands of shares for a relatively low amount of money, hoping ...
Small-cap stocks tend to offer greater returns over the long-term, but they come with greater risk compared to large-cap companies. The greatest downside to small-cap stocks is the volatility, which is greater than large-caps.
You are unlikely to get rich trading penny stocks. On the contrary, you are much more likely to lose your money. Penny stocks and OTC stocks have an average negative annual return of 24%. Over 90% of penny stocks fail.
Are penny stocks smart?
Penny stocks are extremely volatile and speculative by nature. As most trade on OTC exchanges or via pink sheets, where listing standards are lax, penny stocks are susceptible to manipulation and fraud.
Name | Price | Alpha |
---|---|---|
Rattanindia Power Ltd | ₹9.40 | 134.42% |
GTL Infrastructure Ltd | ₹1.85 | 90.95% |
Vikas Lifecare Ltd | ₹6.00 | 29.15% |
FCS Software Solutions Ltd | ₹4.70 | 73.31% |
Are penny stocks worth it? The answer depends on the type of investor you want to be. They aren't a path to long-term riches but short-term trading vehicles for quick profits. If you've been investing long enough, you know that any quick profit comes with a large serving of risk.
S.No | Company Name | Market Cap (In ₹ crore) |
---|---|---|
1 | Adani Green Energy Ltd | 2,59,995.17 |
2 | Tanla Platforms Ltd | 14,110.89 |
3 | Tata Teleservices (Maharashtra) Limited | 17,574.80 |
4 | Rattanindia Enterprises Ltd | 11,343.99 |
Coca-Cola Co (KO)
Coca-Cola is the quintessential blue chip stock, a drinks company that has demonstrated decades of consistent dividends and stable performance. However, KO's average return over the past decade is the worst on this list.
Blue-chip stocks are not high risk, so they're popular among investors with lower risk tolerance. While blue-chip stocks aren't bulletproof, their history of resisting market downturns makes them an appealing choice for many investors.
But such stocks could just as easily fall to zero. Not surprisingly, penny stocks are generally considered to be highly speculative because of large bid-ask spreads, small market capitalization, and lack of liquidity.
For comparison, blue-chip stocks and high-quality growth stocks that are preferred for the long-term portfolio. I largely agree with this idea, but there are some millionaire-maker penny stocks that are worth holding for few years. If these stocks fire, the health of the portfolio can change within a few quarters.
Some companies, such as Amazon (AMZN) originated as penny stocks but later grew into sizable blue-chip companies.
The problem is that despite being included in blue chip ETF indexes, companies like Nvidia and Tesla aren't truly blue chip stocks, George Pearkes, an analyst at Bespoke, told CNN. They're much more volatile. Tesla, for example, is down about 23% so far this year.
What are the risks of blue chip stocks?
- Market Volatility: Although Blue Chip stocks are less volatile than smaller-cap firms, market movements can nevertheless harm them.
- Economic Downturns: Even Fortune 500 corporations are not immune to economic downturns.
Name | Symbol | % Loss |
---|---|---|
Bajaj Finance | BAJFINANCE | -10.37 |
Zee Entertainment Enterprises Ltd. | ZEEL | -8.51 |
Bajaj Finserv Ltd. | BAJAJFINSV | -6.82 |
Godrej Consumer Products Ltd. | GODREJCP | -6.41 |
Sure, some penny stocks turned out to be massive success stories, like Apple, Ford Motor, and Monster Beverage. Find a similar success story like those top penny stocks, and you stand to make a fortune.
- PLUG4.020.39% Plug Power Inc.
- NYCB3.460.24% New York Community Bancorp, Inc.
- OPEN2.950.17% Opendoor Technologies Inc.
- CIFR3.630.78% Cipher Mining Inc.
- NKLA0.700.03% Nikola Corporation.
- BITF2.640.15% Bitfarms Ltd.
- TELL0.870.05% Tellurian Inc.
- EVA0.940.20% Enviva Inc.
Due to these factors, penny stocks have a higher failure rate compared to more established stocks. According to a study by the SEC, only about 10% of penny stocks succeed in the long term. This means that a large majority of penny stocks do not perform well and may lead to significant losses for investors.
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