Penny stocks - what are they?

Ever hear of the term "Penny Stocks" and wonder what they were? You are not alone. I use to play the stock market back in the late 1990's. I have made $900 in one day and lost $900 in one day too. Many of those stocks were priced right around $10-15 a share. When they start to be priced below $2 a share is when they are in danger of becoming a penny stock. Penny stocks are stocks that are priced below a dollar. There are dangers when trading penny stocks. What are they?

The first danger is the stock can be removed from the stock market at any time by the SEC. Often this happens with stock valued at less than .50 cents but I have seen it done to stocks valued at .98 cents. There is no warning either. Just one day they are gone and you are left holding worthless stock. I have had that happen twice on me. Once was a stock that I held on to, thinking the company would rebound, but it never did. I bought the stock when it was about $6 a share and watched it dip to $2 a share then go up again to $9 a share. All that in a matter of a few weeks. I should have sold it but I thought it would go to at least $12 and planned on selling it then. To my horror, one day it dropped to just above $1 a share then the next week hovered around .88 cents. I couldn't afford to sell it then since I only held 100 shares so I waited and waited till it became worthless and pulled from the stock market.

The next danger is from the famous "pump and dump" scheme. Con artists will purchase huge lots of penny stocks then "leak" out the word that the stock is about to boom. During the "leak" or "insider info" period the stock does indeed go up. That is due to some people falling for the lie and buying stock. Once the stock is at the price the con artist wants it to be, they then dump their shares on the market and make a bundle of cash. The problem is that now the stock drops because of the huge sell off.

If you really want to make money on penny stocks, and indeed you can, you must research the company you are investing in - thoroughly. You need to know who holds the majority of the stock, if they are selling it and when did they sell it. Don't sign up for emails that promise to guide you to the best penny stocks to watch - do your own research and don't trust a rumor.

Investing for your future

So you are getting older and you have not even thought about retirement income. There are several ways you can plan for a steady income. You could save like mad and try to have enough tucked before you reach the age you can no longer work or you could make it easier on yourself. Here are a few tips on how to provide that retirement income you will need:

• Invest yearly into a personal IRA account 
• If your job offers a 401K plan and matches your contribution - take their money. Invest as much as you can.
• Look into the various types of life insurance plans that you can cash out at retirement age.

That last one, not many people know about. My husband has one and will be worth more than a cool million by the time he reaches 65. He started the plan about 25 years ago. The monthly life insurance rate was $104 a month and had a disability clause in it. Should he become disabled, the $104 payments would be paid by the insurance company. After 15 years of payments, he used the disability clause. It was the best investment he ever made. Should he die before he retires and cashes out the plan, I will get $100K as beneficiary.

The so called housing crisis

Is the housing crisis really a crisis after all? Consider the facts. Only 3% of all home owners are facing foreclosure. That means 97% are doing just fine. People are not selling their homes because they have lost value - no they are still living in them. A house unlike other investments is very different because we all need somewhere to live. It happens to be an added bonus that our homes have also become an investment. Many of the homes that have been foreclosed on were investment properties that were rented out so unfortunately it is the renters that have lost a place to live. The housing crisis hit the investor market hard and I for one am thankful that it did. The price of housing was driven up mainly by investors buying up available homes and forcing real future home owners out of the market. Now that the market has crashed the real future home owners can get back into the market and buy that first home or look for that retirement house.

Investing your money

Do I invest my money? You bet I do! For years now my major investment has been my home or should I say homes. I am living in my 3rd home in 20 years. Like everyone else I started off with the small starter home and moved up in size and quality each step. When I mean quality I don't mean to keep up with the Jones' but the actual age, condition and location of the home. Now with the home prices dropping I don't think of my home so much as an investment but now as shelter and comfort.

In those many years I have also invested my money in stocks and mutual funds. Some of them bad, some good. I have learned also with my experience to invest in mutual funds rather than individual stocks. I had great foresight when several years ago I bought 50 shares of Lam Research stock. In the course of one month the price went from $38.00 a share to $120.00 a share. I sold it right before a 3 way split and the price bottomed out. It took well over 4 years for the price to rebound back to before the split. My other investments were not so good. There have been several companies that went belly up while I had 100's of shares of them. "Playing" the stock market (yes I did the day trader thing about 9 years ago) I have lost about $15K. On the other hand investing in mutual funds I have gained it all back and then some.

Learn from my experiences, don't day trade you will lose BIG time. Invest for the long run. Invest in companies that will be around in 20-30 years. Stay away from technology stocks, they are too volatile. Go with energy stocks and "green power" stocks as they are the wave of the future. I have several mutual funds right now and only one stock a "green stock" call Nova Bio Fuels (NBF) because I believe in the future of bio-diesel.

Invest, but invest wisely.