What are the Advantages of Buying Cheap Stocks?

Luke Arthur

Buying cheap stocks is a popular method of investment for many who choose to get involved in the stock market. Cheap stocks can provide investors with advantages that are not always present with other forms of investment. Cheap stocks can allow for a lower initial investment, provide greater potential returns, and provide bigger dividend payments.

Cheap stocks can allow for a lower initial investment.
Cheap stocks can allow for a lower initial investment.

The first advantage of investing in cheap stocks is that investors will be able to get started with a lower initial investment. Many investors do not have much money to invest into the markets right away. By getting involved with cheap stocks, investors can significantly decrease the amount of capital required to get started in the market.

Another big advantage of this type of investment is that there is a much greater potential for return. By investing in cheap stocks, investors will be able to purchase more shares than they would have been able to with a more expensive stock. Owning more shares is going to allow investors to amplify their returns with even a small monetary gain in the stock price of the company.

For example, if an investor had $1,000 US Dollars (USD), he or she could purchase 2,000 shares of a stock that was priced at $.50 USD per share. If the stock increased only $.50 USD per share, this would mean the investor doubled his or her money. By comparison, if an investor used the same $1,000 USD to buy 10 shares of a stock that was priced at $100 USD per share, the same results would not occur. If the stock price increased by $.50 USD, the investor would only make $5 USD.

Another advantage of putting money into cheap stocks is the amount of dividend payments that can be received. Dividend payments are issued by many companies as a way to share the wealth created by doing business. Shareholders are going to receive a specific dividend payment for every share of stock they own. This means if an investor can increase the number of shares he or she owns, the dividend payment will grow quickly.

Dividends are another source of returns for stock investors. These dividends are typically issued on a quarterly basis, but some companies will issue them monthly instead. By creating a large portfolio of cheap dividend stocks, an investor could potentially create a massive source of residual income for themselves that will last for the long term.

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