Short-Term Trading vs. Long-Term Investing:
It can be discouraging to think that you need hundreds of thousands of dollars to be able to generate substantial returns in the market. The S&P 500 only returns about 5-10% per year on average. If you can match the upper range of that (10%) with a $100,000 portfolio, for example, you’ll see a $10,000 return. Now that’s a large chunk of money – sure, but certainly not a full-time income. And on top of that, it took a huge $100,000 lump sum and a full year’s worth of time to earn it. So it begs the question: are there better ways to earn substantial returns in the market with a more limited starting portfolio?
Long-term investors are typically caught up in blue-chip, dividend-generating stocks. And it makes sense because these companies have proven track records: solid revenues, profits, and cash in their bank accounts. There’s tons of publicly available information on them, so researching opportunities is somewhat simple – at least compared to the lesser-known penny stocks out there. But in the short-term, penny stocks can provide much higher profit-potential – there’s no doubt about it. Blue-chips inherently don’t provide the same volatility as penny stocks. It would be out of character for well-known stocks like Apple, Microsoft, and IBM to move over 5% (in either direction) on any given day, but it’s not out of the ordinary to see penny stocks soar 50-100%+ on rumors, news, deals, etc. If approached correctly, penny stocks can result in substantial returns on even small 500-$1,000 portfolios.