Aggressive Investment Strategy

AAA

DEFINITION of 'Aggressive Investment Strategy'

A portfolio management strategy that attempts to maximize returns by taking a relatively higher degree of risk. An aggressive investment strategy emphasizes capital appreciation as a primary investment objective, rather than income or safety of principal. Such a strategy would therefore have an asset allocation with a substantial weighting in stocks, and a much smaller allocation to fixed income and cash. Aggressive investment strategies are especially suitable for young adults because their lengthy investment horizon enables them to ride out market fluctuations better than investors with a short investment horizon. Regardless of the investor’s age, however, a high tolerance for risk is an absolute prerequisite for an aggressive investment strategy.

INVESTOPEDIA EXPLAINS 'Aggressive Investment Strategy'

The aggressiveness of an investment strategy depends on the relative weight of high-reward, high-risk asset classes such as equities and commodities within the portfolio.

For example, Portfolio A which has an asset allocation of 75% equities, 15% fixed income and 10% commodities would be considered quite aggressive, since 85% of the portfolio is weighted to equities and commodities. However, it would still be less aggressive than Portfolio B, which has an asset allocation of 85% equities and 15% commodities.

But even within the equity component of an aggressive portfolio, the composition of stocks can have a significant bearing on its risk profile. For instance, if the equity component only comprises blue-chip stocks, it would be considered less risky than if the portfolio only held small-capitalization stocks. If this is the case in the earlier example, Portfolio B could arguably be considered less aggressive than Portfolio A, even though it has 100% of its weight in aggressive assets.  

An aggressive strategy needs more active management than a conservative “buy-and-hold” strategy, since it is likely to be much more volatile and would need more frequent adjustments to tailor it to changing market conditions. More frequent rebalancing would also be required to bring portfolio allocations back to their target levels, as the volatility of the assets that comprise an aggressive portfolio will quite often lead allocations to deviate significantly from the original or target weights.

VIDEO

Loading the player...
RELATED TERMS
  1. Strategic Asset Allocation

    A portfolio strategy that involves setting target allocations ...
  2. Target-Date Fund

    A mutual fund in the hybrid category that automatically resets ...
  3. Factor Investing

    An investment strategy in which securities are chosen based on ...
  4. Buy And Hold

    A passive investment strategy in which an investor buys stocks ...
  5. Passive Investing

    An investment strategy involving limited ongoing buying and selling ...
  6. Asset Allocation

    An investment strategy that aims to balance risk and reward by ...
RELATED FAQS
  1. How is risk aversion measured in Modern Portfolio Theory (MPT)?

    According to modern portfolio theory, or MPT, degrees of risk aversion are defined by the additional marginal return an investor ... Read Full Answer >>
  2. Are treasury bills a good investment for retirement savings?

    Making investment decisions for your retirement savings is all about balancing opportunity cost and risk. Treasury bills ... Read Full Answer >>
  3. Which stocks in the industrial sector pay the highest dividends?

    In the industrial sector, some of the companies that pay the highest dividends include Highway Holdings Limited, OCI Partners ... Read Full Answer >>
  4. How big is the derivatives market?

    The derivatives market is, in a word, gigantic, often estimated at more that $1.2 quadrillion. Some market analysts estimate ... Read Full Answer >>
  5. How can I calculate the carrying value of a bond?

    The carrying value of a bond is the net amount between the bond’s face value and any unamortized premiums or minus any amortized ... Read Full Answer >>
  6. Besides stocks, what other asset classes can I invest in through ETFs?

    One of the main advantages of exchange-traded funds (ETFs) is that they offer investors the opportunity to invest in an extremely ... Read Full Answer >>
Related Articles
  1. Investing Basics

    Calculating Risk and Reward

    Investing money into the investment markets has a high degree of risk, and if you're going to take the risk, the amount of money you stand to gain needs to be big.
  2. Investing Basics

    An Introduction To Factor Investing

    Factor investing delivers risk adjusted results that deliver the same or better investment returns as the overall market but with less risk.
  3. Investing Basics

    Achieving Optimal Asset Allocation

    Minimizing risk while maximizing return is any investor's prime goal. The right mix of securities is the key to achieving your optimal asset allocation.
  4. Investing News

    Using Time Horizons In Investing

    Time-horizon investing is all about planning. You need to think about your goals and select investments based on the amount of time you have until the goal must be funded.
  5. Investing Basics

    Active Investment Management Misses The Mark

    Active investment management offers little advantage in the secondary capital markets.
  6. Investing Basics

    Portfolio Management For The Under-30 Crowd

    Young investors have some advantages over their older counterparts. Read on to learn how to build a portfolio that will grow with you.
  7. Fundamental Analysis

    The Key To High Returns Is A Disciplined Strategy

    Learn about different investment strategies and how to pick the right one for you.
  8. Fundamental Analysis

    How To Construct A High-Risk Portfolio

    Over time, intelligent and disciplined risk-seeking behavior can produce substantially above-average returns.
  9. Savings

    High-Risk Retirement Portfolio Not Always Taboo

    Find out how much risk your portfolio can take and whether your money will last.
  10. Fundamental Analysis

    Tesla Home Batteries Could Transform Your Electric Bill

    With limited daylight hours, solar power cannot power our homes at night, but Tesla Motors might help solve that problem.

You May Also Like

Hot Definitions
  1. Net Worth

    The amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure ...
  2. Stop-Loss Order

    An order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit ...
  3. Covered Call

    An options strategy whereby an investor holds a long position in an asset and writes (sells) call options on that same asset ...
  4. Butterfly Spread

    A neutral option strategy combining bull and bear spreads. Butterfly spreads use four option contracts with the same expiration ...
  5. Unlevered Beta

    A type of metric that compares the risk of an unlevered company to the risk of the market. The unlevered beta is the beta ...
  6. Moving Average - MA

    A widely used indicator in technical analysis that helps smooth out price action by filtering out the “noise” from random ...
Trading Center