(8) Penny Stocks: 5 to 10% Of An Ideal Stock Portfolio
It is one of the most risky types of stocks that makes ideal stock portfolio. Penny stocks are securities of companies that trade at no more than $5 per share (below Rs10 in India) & sometimes as low as 2 cents (below Rs1 in India).
These types of stocks are usually issued by small startups that need to make money. If such a company performs well then its share price can appreciate quickly.
In such a case, penny stock can become multibagger stock for its investors. Penny stocks are always small cap stocks. But, reverse is not necessarily true.
Some of the unique characteristics of penny stocks include share price not more than $5, few million dollars in net tangible assets, and short operating history.
Several penny stocks are virtually worthless as they are highly risky investments. However, several companies with penny stocks fail to thrive or commit fraud every year.
Thus, investors with high risk appetite can invest 5 to 10% of their portfolio value in penny stocks.
[Read Also: 25 Basic Rules For Investing Money In Stock Markets]
(9) Stock Options: 5 to 10% Of An Ideal Stock Portfolio
It is one of the most popular types of stocks that makes ideal stock portfolio. Stock option is a contract that gives the buyer the right, but not obligation, to buy or sell an underlying asset at a specific price on or before a certain date.
Like stocks, options also involve risks & are not suitable for every trader. Option trading is found to be highly speculative in nature. It carries the risk of losing partial or even entire premium paid by investor.
Investors with high risk appetite can invest partial amount of their total investments in options. However, one of the biggest advantages of option trading is the possibility of hedging your portfolio. Hedging with options can limit your potential downside risk.
Image Source: Shutterstock