Loading the player...

What is an 'Aggressive Investment Strategy'

An aggressive investment strategy is a means of portfolio management 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 a lengthy investment horizon enables them to ride out market fluctuations. Regardless of the investor’s age, however, a high tolerance for risk is an absolute prerequisite for an aggressive investment strategy.

BREAKING DOWN '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.

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 consists of 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.

Aggressive Investment Strategy and Active Management

An aggressive strategy needs more active management than a conservative “buy-and-hold” strategy, since it is likely to be much more volatile and could require frequent adjustments, depending on market conditions. More rebalancing would also be required to bring portfolio allocations back to their target levels. Volatility of the assets could lead allocations to deviate significantly from their original weights.

Recent years have seen significant pushback against active investing strategies. Many investors have pulled their assets out of hedge funds, for example, due to these managers' underperformance. Instead, some have chosen to place their money with passive managers. These managers adhere to investing styles that often employ mutual and exchange-traded funds (ETFs). In these cases, portfolios often mirror a market index, such as the S&P 500.

RELATED TERMS
  1. Aggressive Growth Fund

    An aggressive growth fund is a mutual fund that seeks capital ...
  2. Asset Allocation Fund

    An asset allocation fund is a fund that provides investors with ...
  3. Portfolio Management

    Portfolio Management is the art and science of making decisions ...
  4. 100% Equities Strategy

    A 100% equities strategy is an investment strategy for an individual ...
  5. Fund Category

    A fund category is a way of differentiating mutual funds according ...
  6. Defensive Investment Strategy

    A defensive investment strategy is a conservative method of portfolio ...
Related Articles
  1. Financial Advisor

    An Introduction to Asset Allocation

    A portfolio is only as strong as its asset allocation. To create the right one, investors need to determine their risk tolerance, time horizon and goals.
  2. Investing

    How to Build Your Optimally-Balanced Portfolio

    How do you build an optimally balanced portfolio? A lot depends on your appetite for risk, and your understanding of rebalancing.
  3. Managing Wealth

    6 Asset Allocation Strategies That Work

    Your portfolio’s asset mix is a key factor in its profitability. Find out how to achieve this delicate balance.
  4. Investing

    5 Popular Portfolio Types

    Learning how to build these five types of portfolios will increase your investing confidence and give you financial control.
  5. Investing

    What Is Tactical Asset Allocation?

    Here's how tactical asset allocation, an extension of strategic asset allocation, works.
  6. Investing

    The Workings of Equity Portfolio Management

    Portfolio management is a necessity, not an afterthought, in achieving analytical efficiency.
  7. Investing

    How to Manage Risk in Your Personal Portfolio

    To best manage your investment portfolio over the years, determine your risk tolerance. Learn about the various types of risk categories you may fall into.
  8. Investing

    How to Select and Build a Benchmark to Measure Portfolio Performance

    How to select and build a benchmark to measure the performance of your investment portfolio
  9. Managing Wealth

    Asset Allocation: The First Step Toward Profit

    Understanding the different asset classes is an essential part of portfolio diversification.
  10. Financial Advisor

    How To Pump Up Your Portfolio With ETFs

    These funds trade like stocks, provide diversification, reduce risk and increase returns.
Hot Definitions
  1. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by companies seeking the capital to expand ...
  2. Cost of Goods Sold - COGS

    Cost of goods sold (COGS) is the direct costs attributable to the production of the goods sold in a company.
  3. Profit and Loss Statement (P&L)

    A financial statement that summarizes the revenues, costs and expenses incurred during a specified period of time, usually ...
  4. Monte Carlo Simulation

    Monte Carlo simulations are used to model the probability of different outcomes in a process that cannot easily be predicted ...
  5. Price Elasticity of Demand

    Price elasticity of demand is a measure of the change in the quantity demanded or purchased of a product in relation to its ...
  6. Sharpe Ratio

    The Sharpe ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk.
Trading Center