In the world of investing, where opportunities come and go in a blink of an eye, investors are tempted to take on risky investments in hopes of getting rich overnight.
The ugly truth is that some stocks may seem very promising on the surface, but they can cost you more than you think.
- Penny stocks
These are stocks that trade for low prices, which makes them even more attractive to investors.
Nevertheless, penny stocks are one of the riskiest types of investments. First of all, it is very difficult to research these stocks, and they don’t have an extensive history either. Thus, it becomes nearly impossible to determine whether it’s a solid investment.
Secondly, penny stocks are more volatile and harder to sell. Let’s say you buy a couple of hundred shares of a penny stock, and a few days later, you feel the price is going to drop. You try to sell your investments, but there are currently no buyers. After a few days, the stock price plunged, and your investment has dropped in value before you got the chance to sell.
Where to invest instead: When it comes to investing, the rule of thumb is to put your money in a company with growth potential. One great example is Amazon. In the past few years, Amazon stock has been going up higher and higher, bringing amazing profit opportunities to the investors.
- Meme stocks
GameStop and AMC Entertainment Holdings are two of the most famous meme stocks.
The issue with these stocks is that their price increases due to internet hype rather than the company’s fundamentals. This year, GameStop saw its prices rise tremendously, but it wasn’t because the company has strong fundamentals or was financially healthier.
Rather, it was because investors in the online community Reddit were promoting the stock to artificially raise its stock price.
Where to invest instead: If you are eager to follow new investing trends, Netflix is a big hit right now. The company keeps its subscribers’ number higher up, thus boosting its stock price. Also, experts predict big surprises and a stock boom for the American giant. So, Netflix could be the best to invest in 2021.