Penny Stock Index

A lot of penny stock investors wonder whether they should buy the penny stock index? Firstly, does such an index even exist? Well, yes and no. There isn't a penny stocks index but there are various small cap and microcap indexes you can invest in and when we talk about penny stocks, nano stocks, or micro cap stocks, it's pretty much all semantics as they all mean the same thing.

Now as most investors know, you can't actually buy an index, unless of course you're will to buy each and every stock that makes up the index and in the right proportions, which would be pretty much a waste of money and effort as there already invesment vehicles you can use to achieve the same result, minus a small management fee of course. These are what's known as ETFs or Exchange Traded Funds and yes they come in micro cap varieties.

One of the most popular penny stock index ETFs is the iShares Russell Microcap Index (NYSE: IWC), which is based on the index representing the bottom 3% of the US stock market. Some others include the Vanguard Small-Cap ETF (AMEX: VB), the iShares Morningstar Small Core ETF (NYSE: JKJ), and PowerShares Zacks Micro-Cap ETF (NYSE: PZI).

If you're interested in buying one of these penny stock index funds, like any other ETF you can purchase and sell them using your brokerage account as they trade just like stocks.

So why would you buy penny stock ETFs? There are many reasons why you would want to do this but one of the main reasons is to diversify your portfolio. I know you've probably heard that term a lot before but diversifying your penny stock portfolio helps to mitigate risk while still allowing you to benefit from the above average growth that penny stocks can yield. Another major benefit is that you don't have to actively track 50 penny stocks on an ongoing basis and instead can just focus on one. You could even swing trade it for greater profits if you're skilled at that type of trading strategy.

Of course there are also reasons why not to buy a penny stock index ETF. If you are expecting the same 200% to 2000% returns that a winning penny stock can sometimes grant you, forget it, it's not going to happen. ETFs are designed to hedge your risk while at the same time produce solid returns, solid, not extreme yields. If you are in penny stocks to make big returns then stick with your plan of finding a handful of penny stocks to buy that have great potential. Just make sure you limit your risk in other ways such as limiting your penny stocks to no more than 20% of your overall portfolio or at the very least only risking money you can afford to lose.