“Aggressive” is a term you will hear a lot when you are investing, but what does it mean? Are you an aggressive investor? How does this apply to what you in invest in? And is this a good or bad thing or somewhere in the middle?
It’s about your investment strategy and not your personality.
In the investing world, being an aggressive investing has very little to do with your personality and more to do with your choice of investments and the strategy you apply.
An aggressive investor is someone who:
Doesn’t mind seeing their investment go up and down in value
Wants to maximise returns by taking on a higher exposure to risk
Has a longer time horizon (over 10 years)
Doesn’t need income from their investments and instead focus’ on the growth of an asset
Tends to get higher returns over the long run
What does an aggressive investing strategy look like?
Aggressive investors are willing to accept periods of the severe market volatility – the ups and downs in the market. They allow volatility in exchange for the possibility of receiving higher relative returns. The reason aggressive investors need to have a time horizon longer than 10 years is they tend to trend towards things that are risky or volatile such as stock market and concentrating on investing in shares that have growth potential, i.e. emerging markets. If there is a severe downturn in the market, you’ll need plenty of time to make up for the decline in value. Put simply, the more allocation to stocks, the longer the period to invest is appropriate. If you were a conservative investor (the other end of the risk spectrum), you would be investing in products that are neither risky nor volatile such as bonds.
An investor does not fit into a box of either being aggressive or conservative but is somewhere along the scale of very aggressive, very conservative or somewhere in between. If an investor had an allocation of 80% in the stock market and 20% in term-deposit savings, this would be considered quite aggressive. Where an investor sits will differ between investors.
Check out the quiz to help give you a more of an understanding as to where you lie when it comes to your investing profile - What type of investor are you?
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Why would you invest aggressively?
Aggressive portfolios are most appropriate for investors in their 20s and 30s because you typically have a pretty long time horizon to invest and recoup any losses you may experience from the natural fluctuations within the market. Whereas if you are in your 60’s and getting to retire a conservative approach could be more suitable as you would be wanting to start spending that money soon. An aggressive portfolio might have a 7-10% average rate of return over time but could fluctuate with gains of 40% in one year and its worst year have a decline of 30%.
If you don’t need your money any time soon, you could choose investments with more volatility. A more volatile investment will have more risk in the short term, as it may decrease in value by a significant amount overnight. But that same volatility goes the other way as well, which can give you a bigger return in the long term. If you can wait out short-term ups and downs with a long time horizon, then an aggressive investment portfolio may be suitable for you.
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When would aggressive investing not be right for an investor?
Aggressive investors, in general, believe that the markets will go up, and any downturns are only temporary based on historical trends and evidence. However, there may come a time when you need to get money out of your investments and selling is unattractive due to a recession in the markets. Ideally, you would wait until the markets recovered, but waiting can sometimes be a luxury. Being young doesn’t automatically make aggressive investing a natural fit for you. You will also need to consider your financial goals. If your goal is just around the corner, then your investment losing value may affect your ability to reach that financial goal. But if your goal is years in the future, then a loss in value today isn’t going to make a difference. It always comes back to the reward/risk tradeoff, which is what aggressive investors sign up for.
Overall, aggressive investing is about the way your investment portfolio today connects with your financial goals. Remember that aggressive investing isn’t an all or nothing deal but is instead a scale between being conservative or aggressive and you can divide up your portfolio any way you want.
Check out the quiz to help give you a more of an understanding as to where you lie when it comes to your investing profile - What type of investor are you?
Related article: How to gain control over your money?
Information provided by goBuoyant is general in nature and does not take into consideration your personal financial situation. It is for educational purposes only and does not constitute formal financial advice. Remember, the value of any investment can go down as well as up.
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