penny stocks canada
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Is it possible to invest in the stock market with low funds?
It’s hard enough to invest to begin with, with low funds it’s a lot harder.
First, it costs to trade, brokers charge a commission for brokering the trade therefore the smaller the trade, the greater the loss due to overhead. Lower priced shares does not help this at all, the commissions are the same for the same number of shares so in fact penny stocks actually makes this worse as you may have enough shares to increase the commissions to the next category.
The other matter is risk. So long as there is the possibility of losing your investment and there is always that possibility, you can not invest your entire portfolio on one risk, you must retain some in case you lose on that investment. For example if you could wager on a coin toss where you would win twice your wager and the return of you wager when you won but would lose your wager when you lost, you would have a positive expectation opportunity and would make money for every dollar that you wagered. You would expect to win $1.50 for every $1 lost. If you bet nothing, you would win nothing but if you bet everything that you have, you would lose everything with the first loss. Indeed, if you wager anything more than 50% of your value on each coin toss, you will lose all your money due to the volatility even though you odds are in your favor, at 50% you would break even. A 25%, you would maximize your gains. The way around this is to bet on more than one opportunity at a time ( diversification ), if you could bet on two such coin tosses, the optimal wager would be 21% on each coin toss which would be 42% of your portfolio. Unfortunately, diversification increases your overhead. When you look at mutual funds, you will often find that they would invest about 2% in each of their top ten holdings, this is because they are trying to manage their risks. If you have low funds, 2% is very little money indeed.
However, all is not lost, the value of regular contributions is a lot higher than you would think. That’s why the cell phone companies will give you a free cell phone if you’ll sign on for a three year contract. If you were to commit yourself to depositing $466 a month ( enough to max out an IRA in the States or a TFSA in Canada ), it would be like owning a bond that paid that much each month. Of course, your ability to deposit that amount varies with your employment so if your company’s bonds normally pay a rate of 7% and your employment was as good as the success of your company then the value of 40 years of making $466 per month contributions is $76,913.54 when 7% per annum is used as the market rate to determine the market value of an equivalent bond.
You need to budget your monthly income and invest a regular proportion of your income.
Canadian Stocks — Stock Market in Canada, Penny Stocks in Canada