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Ever since the stock market has been having so many problems, I have been hearing questions about penny stocks. While stocks like Citi and other banks may be in that range now, they aren’t really considered penny stocks. Here is what Investopedia says about penny stocks:

The terms “penny stocks” and “micro cap stocks” can be used interchangeably. Technically, micro cap stocks are classified as such based on their market capitalizations, while penny stocks are looked at in terms of their price. Definitions vary, but in general a stock with a market capitalization between $50 and $300 million is a micro cap. (Less than $50 million is a nano-cap.) According to the Securities & Exchange Commission (SEC) any stock under $5 is a penny stock. Again, definitions can vary, some set the cut-off point at $3, while others consider only those stocks trading at less than $1 to be a penny stock. Finally, we consider any stock that is trading on the pink sheets or over-the-counter bulletin board (OTCBB) to be a penny stock.

Penny stocks often seem like a good deal because they are so cheap. However, there are certain risks that come with investing in penny stocks. This is because there is a lack of information about them, no minimum benchmark standards and no solid history. Indeed, if you take $1,000 and put it in a penny stock of a company that tanks, you’ve completely lost your $1,000. Another problem with penny stocks is liquidity.  These stocks don’t always trade actively, and you may not be able to find a buyer. Another problem is that penny stocks are more susceptible to the “pump and dump” practices of the unscrupulous.

If you invest in the right penny stocks, you can make a killing if a company manages to take off. However, you should realize that there is risk involved, and you should only use money that you can afford to lose when investing in penny stocks.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

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Yesterday, the stock market shuddered perceptibly as the government announced that it might take a 36% stake in Citi. Indeed, the reception of this not-quite nationalization of Citi has actually caused more jitters on Wall Street than earlier rumors of outright nationalization. And current Citi shareholders aren’t going to get much benefit from this, either. The Wall Street Journal reports on yesterday’s agreement between the U.S. governemnt and Citi:

Friday’s agreement shows how hard the Obama administration is trying to stabilize the U.S. banking industry without a full-fledged nationalization that would wipe out investors and leave the government in charge. But the deal will punish existing shareholders of Citigroup, who will see their stake diluted by 74%, and likely do little to change the awkward relationship between federal officials and management of the New York company. …

This rescue also was more palatable because the government isn’t pumping in additional taxpayer dollars. Instead, as much as $25 billion in preferred shares held by the U.S. government will be converted into common shares as Citigroup struggles to stabilize itself following more than $37 billion in net losses during the past five quarters.

In addition to increasing its stake in Citi, the government is also planning to overhaul the Board — changing the way the bank is run. CEO Vikram Pandit will remain, but the Fed has been making changes in the boardroom through pressure. However, since the government is taking preferred shares and not using taxpayer money, Citi is not being pressured to offer more loans or curb executive pay.

While it probably doesn’t pay to be a current investor in Citi right now, there is potential for future growth. If the government can manage to stabilize Citi, then it is likely that the multi-national finance juggernaut will survive this recession and thrive in the future.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

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• Citigroup board set for shakeup (guardian.co.uk)
• Citibank asks government to invest more cash into bank (americablog.com)
• Citigroup Inc. reaches aid deal with US government to increase stake. (ceoworld.biz)

Whether you are looking to use a retirement account for investing, or whether you just want to take advantage of a bear market to make some carefully considered investments for futures gains, using an online broker can be a good way to get started. Often, with online investment accounts, you can do your own research and you have a great deal of control over which investments you make.

However, like any other investing decision, it is important to consider your individual needs when choosing an online investment broker. Investopedia offers some tips for choosing an online investment broker that is right for you:

1. Consider a full-service broker. Even though a full-service online investment broker costs more than the discount brokers, if you are a beginner it can be a good idea to start with the support and knowledge of a full-service brokerage. Additionally, you may find that the discount investment broker doesn’t have the investment vehicles you are looking for. A discount broker will save you money, but you need to make sure it really is the right fit for you.
2. Availability and flexibility. Check the site at various times during the day (including peak trading times) to see whether or not the site has trouble with availability. You want to make sure that you will be able to make trades when you want to. Additionally, find out whether the online broker allows you to make trades via phone — and what kinds of fees are charged for phone trades.
3. Minimum deposit. Figure out what kind of minimum deposit you need to start — as well as what your account minimum should be. Some online investment brokers require very high minimums. If you can’t afford the minimum account balance, perhaps you should move on.
4. Customer service. Make sure you will have access to good customer service. When you need help with your investment account, you need help NOW.
5. Find out about cash in the account. In many cases, an online investment broker will give you a modest (3% or so) return on the cash you have sitting in your account. This is a nice bonus. But not all online brokers offer this, so see if you can look for one that does.