Beating Inflation: Investing in Penny Stocks

| April 11, 2012 | 0 Comments

The economy is something that everybody talks about, but no one fully understands. Often, people become sharply aware of economic changes when the results of such changes hit close to home. For example, in the US, when gas prices go up in the summer time, people sometimes get close to panic. Inflation means that prices of everything will continue to rise.

In order to beat inflation, it’s necessary to store money in a vehicle that will gain interest, at a rate at least matching that of inflation. For example, if the rate of inflation if 5% and your savings appreciate at a 3%, it looks like you’re gaining money, because the dollar amount of your account goes up. But, because each of those dollars actually buys fewer things, it should be considered less money. Essentially it’s the same as giving a child four cookies instead of five, but breaking each cookie in half. It’s less stuff, but more pieces.

The stock market typically increases and decreases with rises and dips in the economy, mostly because the stock market is an actual representation of a large part of the economy (the publically traded part). The stock market also tends to appreciate at a rate faster than that of inflation. This is only really true on a very large scale view of the market, on average. Individual stocks can and do regularly depreciate or appreciate independently from the rate of inflation.

Penny stocks are an advanced sector of the market. Specifically, penny stocks are often not traded on major exchanges, and do not publish the same volume or detail of reporting as larger-cap stocks. This makes determining the best penny stock to buy somewhat more difficult than the equivalent research for an exchange-traded security. But with enough diligence, skill and proper guidance from knowledgeable investors, penny stocks can be a good hedge against inflation.


Category: Investing in Penny Stocks

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