In the world of investing, every choice has its own unique set of risks and rewards. If you're a low-cost stock shares enthusiast, chances are you already know the main upsides and downsides of the niche. But, if you are just getting ready to enter the low cost, or penny marketplace, here are some pros and cons you need to know about.

Con: Risk is Higher Than Usual

When you buy shares that are listed at $5 and under, there's risk of total loss. But, that's not a unique downside of pennies. The unique part of the risk profile is that many members of this segment carry prices well below that $5 cut-off, namely in the under-$1 zone. These issues literally sell for pennies, and carry a very real risk of becoming worthless. In fact, some investors who favor low-cost stocks stick to the higher end of the $1-$5 zone and only consider companies that have been around for 10 years or more.

Pro: Penny Stock Runs Can Mean Outsize Profits

High risks and equally high rewards go hand in hand. That fact holds true in many areas of personal finance, economics, and life in general. It's especially apparent when you look at the penny stock niche. These under-$5 shares are favored by some investors for their profit potential, even though the accompanying prospects of loss are equally as great.

It's true that a handful of low-cost stocks regularly have huge runs and earn massive profits for investors. Imagine the windfall you'd enjoy if you bought 1,000 shares of ABC Corp. at $2 per unit and the price shot up to $3.50 within a week. That's a 75 percent profit, something that's almost mathematically impossible with a blue-chip or high-priced issue. Obviously, the big pro of these low-priced securities is that there is a chance for huge profits.

Con: Younger Companies

Spend a few hours checking the histories of corporations whose shares are priced on the very low end of the spectrum, at $10 and under. You'll quickly notice that, compared to blue-chips and higher-priced issues, the companies with under-$10 stock prices tend to be younger organizations. For a great number of corporations that clear the hurdle of getting listed on a major exchange, their next goal is to send their stock's price above that crucial $10 mark.

Pro: It's Easy to Diversify

By far, one of the big pluses of penny-shares is that investors can instantly diversify their portfolios without putting a large dent in their account balances. When you do the math, it becomes apparent that anyone can purchase a dozen different low-cost issues at, for example, $5 each. Buying 100 shares of each one will set you back $600. That's a pretty good bargain for 12-company diversification right off the bat.

Pro: Entry Cost is Minimal

As noted above, you need not be wealthy to dabble in low-priced stocks. For the vast majority of people who trade these kinds of issues, this low cost of entry is the initial feature that attracts them to the pursuit.