This past summer has shown that markets can be very very volatile. Is doesn’t bode well for the Efficient Market hypothesis. There are a lot of professionals out there trying to figure out what everything is worth given all the economic news coming out from all corners of the globe, but at the end of it all they seem to get it wrong and things fluctuate wildly. That causes stomach ulcers for them and you.

So let’s talk about risk.

There are different kinds of risk when investing in the stock market. Some you can control and some you cannot. Investing in penny stocks is certainly a risky thing to do. However, as we’ve seen, investing in the overall market (index fund) can be fraught with risk as well.

In general small cap stocks are much riskier than a stable growing market, but in uncertain times they could present opportunities for growth where larger cap stocks are stock following the trend. This isn’t going to be a generalization, however many penny stocks are poorly corelated with index performance. So the overall market risk isn’t at play as much in a smaller cap company than the bigger ones with significant weightings in index funds.

Don’t get me wrong though penny stocks are risky! Their risk however would be evaluated differently than large cap companies.

#1 risk you can control is yourself and your money. You are the only one who determines the exposure you have to the market and individual stocks so your due diligence is always required!

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