What is an Aggressive Investment Strategy?
Let me explain what an aggressive investment strategy really means. It's a portfolio management approach that aims to maximize your returns by taking on a higher level of risk. You focus on capital appreciation as your main goal, rather than steady income or protecting your principal. This often means putting a big chunk of your portfolio into stocks, with little to nothing in bonds or cash.
Who Should Consider This Strategy?
I recommend aggressive strategies mainly for young adults who have smaller portfolios and plenty of time ahead. With a long investment horizon, you can ride out market ups and downs, and early losses won't hit as hard. But no matter your age, you need a high tolerance for risk to make this work. If you're older, maybe apply it only to a small part of your savings.
Key Takeaways on Aggressive Investing
Remember, aggressive investing means embracing more risk for the chance at bigger rewards. You might use strategies like smart asset selection or allocation to hit your goals. But trends since 2012 show many investors ditching aggressive active management for passive index funds.
Understanding the Aggressiveness in Your Portfolio
The level of aggressiveness depends on how much you weight high-reward, high-risk assets like equities and commodities. Take Portfolio A: 75% equities, 15% fixed income, 10% commodities—that's aggressive because 85% is in riskier stuff. Compare it to Portfolio B with 85% equities and 15% commodities; it's even more aggressive. Even within stocks, choosing blue-chips makes it less risky than small-caps. Allocation matters too—spreading money across 5 stocks is riskier than 20. High turnover, chasing hot performers, can boost returns but also ramps up costs and potential underperformance.
Aggressive Strategies and Active Management
You'll need more active management with an aggressive approach than a simple buy-and-hold. It's volatile, so expect frequent tweaks based on market conditions and rebalancing to keep allocations on target. This means higher fees, as managers might need more staff. Lately, there's been a backlash against active strategies—investors are pulling out of hedge funds for underperforming and shifting to passive managers who track indexes like the S&P 500.
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