The aggressive investment strategy is focused on gaining maximum returns from selecting a highly risky group of assets, and the objective of capital preservation is secondary. This is only possible when the risk appetite of the investor is high. Such a portfolio would have the majority of its holdings in stocks and other risky assets such as futures, options, commodities, and even new asset classes such as cryptocurrencies.
The aggressive investment strategy entails stretching your risk appetite and taking high-risk, high–reward securities for investment. The purpose is to earn a reward number of times than the benchmark index. Usually, this is achieved by giving high weightage to equities in the portfolio.
How much Aggressive is Really Aggressive?
It is easy to mistake a more equity-focused portfolio as aggressive. While it might be true in most cases, the case where usually 70% or more of the investment is in these risk-bearing assets, the portfolio might be termed as “aggressive.”
Another way to check for an aggressive portfolio is the composition of the stocks – if the stocks are mostly in large-caps, the portfolio is still safe. If the equity side is heavily invested in small-caps and mid-caps, it can be called an aggressive portfolio.
Also Read: Active vs Passive Portfolio Management
Does Aggressive mean Reckless?
X times, the growth of the benchmark is achieved in portfolios by taking a certain amount of risk. This risk can be in terms of exotic assets as outlined above or going for risky trading strategies such as futures and options. These kinds of assets require regular monitoring and an active form of investing. It would require quick portfolio rebalancing and trading. However, all this will contribute to being more vigilant and increase returns. A passive strategy would bring a downfall with such securities, which are volatile in nature. Thus being aggressive is calculated risk-taking but not necessarily a reckless step.
Who should look at Aggressive Strategy?
Only investors with a high capacity to bear losses and who can bear capital depletion should go for an aggressive strategy. Thus, people up to the age group of 40 years can mostly bear to have an aggressive strategy along with people who have a strong corpus, and the corpus is not a part of their financial goals.
Aggressive Portfolio Strategies
Aggressive Growth Mutual Funds
Aggressive growth mutual funds are a simple way to invest in stocks in an indirect way. Where you will not have to monitor the individual stocks for rebalancing. The returns can fluctuate widely from negative to highly positive. The mandate of the fund is only to give X high returns from a benchmark. Hence the type of investments can change. The only way to judge an aggressive fund is over a long period of time, such as 10 years or so. There can be securities of various industries and of various diversification, which will negate each other’s losses. In totality, this is the least risky way to invest in an aggressive strategy.
Global stocks are a world of opportunities. One can choose from emerging markets to developed and under-developed markets. Each of them has its economic cycles, and among those as well, high-growth stocks are contributors to the economy. Thus, foreign exchange risk and buying and selling costs will ease into your profits, but a well-researched strategy can give high returns.
High-yield bonds are a misleading term as we consider bonds safe, but when the pre-fix “high-yield” comes with it, it means they are high-risk high-returns. They are also called junk bonds. These bonds give high-interest rates but are of low reputation companies or poor credit ratings. Hence, the interest rate offered is high. Holding junk bonds can be risky as well. But knowing when to buy and sell makes all the difference.
It’s important to understand the nuances of each new and risky asset before investing. While constant monitoring and rebalancing can give high returns, these costs should be considered as well.