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Aggressive Investment Strategy
What does it mean to have an aggressive investment strategy?
An aggressive investment strategy is a portfolio management method that aims to maximise returns by taking on a higher level of risk. Capital appreciation, rather than income or principal protection, is often emphasised as a main investment goal in strategies for attaining higher-than-average returns. As a result, such a strategy would have an asset allocation that heavily favours equities, with little or no exposure to bonds or cash.
Young folks with smaller portfolios are often assumed to benefit from aggressive investing tactics. Because a long investment horizon allows them to ride out market fluctuations and losses early in one's career have less impact than losses later in one's career, investment advisors do not recommend this strategy for anyone other than young adults unless it is only a small portion of one's nest-egg savings. However, regardless of the age of the investor, a high risk tolerance is a must for an aggressive investing approach.
THE MOST IMPORTANT TAKEAWAY
Aggressive investment is taking on more risk in exchange for a higher return.
Asset selection and asset allocation are two ways that aggressive portfolio management might use to attain its goals.
Investor preferences shifted away from aggressive methods and active management after 2012, favouring passive index investment.
Understanding the Benefits of an Aggressive Investment Strategy
The proportional weight of high-reward, high-risk asset types like stocks and commodities in a portfolio determines how aggressive an investing plan is.
Portfolio A, for example, with an asset allocation of 75 percent stocks, 15 percent fixed income, and 10 percent commodities, would be deemed fairly aggressive, given equities and commodities account for 85 percent of the portfolio. It would, however, be less aggressive than Portfolio B, which has an asset allocation of 85% stocks and 15% commodities.
Even within an aggressive portfolio's equity component, the stock mix can have a substantial impact on its risk profile. For example, a portfolio including just blue-chip companies would be regarded less hazardous than one containing only small-capitalization stocks. If this is the case in the previous example, Portfolio B, despite having 100% of its weight in aggressive assets, might be regarded as less aggressive than Portfolio A.
Allocation is yet another part of an aggressive investing approach. A plan that simply distributed all available money equally across 20 different stocks may be considered aggressive, but spreading all available money equally among only 5 different stocks would be even more so.
A high turnover strategy, which seeks to hunt equities that demonstrate great relative return in a short period of time, is another aggressive investment method. High turnover may result in greater returns, but it may also result in increased transaction costs, putting the company at risk of bad performance.
Active Management and an Aggressive Investment Strategy
Because aggressive strategies are more volatile and may require frequent modifications based on market circumstances, they demand more active management than conservative "buy-and-hold" strategies. To restore portfolio allocations to their target levels, more rebalancing would be necessary. Due to asset volatility, allocations may fluctuate dramatically from their initial weights. The portfolio manager may need additional people to oversee all of these investments, resulting in increased costs.
Active investment tactics have faced a lot of opposition in recent years. Due to the underperformance of hedge fund managers, many investors have withdrawn their investments out of those funds. Rather, some people have elected to put their money in the hands of passive managers. These fund managers follow investment strategies that frequently involve strategic rotation of index funds. Portfolios in these circumstances frequently reflect a market index, such as the S&P 500.
