All investors know that risk and reward work together. So what is an aggressive investment strategy and why is it worth following? If you are willing to take more risks, it tends to mean a greater reward. The more aggressive your portfolio allocation, the more opportunities to maximize your ROI.
There are different types of aggressive investment strategies, with different degrees of risk. Sometimes, it means embracing an own resource portfolio allocation. Other times, it could mean using leverage to capitalize on market volatility. The basic sentiment is always the same: aggressive investors are not afraid to take risks.
Are you a gunman?
One of the most common terms for aggressive investors is “gunman,” alluding to a Wild West mentality. While institutional and traditional investors tend to balance risk, gunmen welcome it. Unfortunately, the implication is that they do not always accept risks with the same consideration as rewards. They could see a significant ROI, but they could just as easily see big losses.
An example of something a gunman can do is take an aggressive stance on the expected price movement. They could try to capitalize on market sentiment with a big bet more aggressively than expected, such as getting a 4% share when expected losses can only indicate a 2-3% decline. The point is that such aggressive trade tendencies towards speculation, which introduce even more risks.
Gunslinger has a negative connotation, but being one is not always bad. For example, making riskier plays during a prudent period of market sentiment can generate huge returns. Look what happened aggressive investments at the top of the COVID-19 pandemic!
Aggressive investment trends
How do you know if you are an aggressive and risk averse investor? Measure your feelings about these common and aggressive strategies used by many gunmen:
- Looking for volatility to capitalize on price fluctuations
- Use leverage and margin to accelerate purchasing power and yields
- To favor the impulse of the price in the short term against the value in the long term
- Preference towards more frequent operations, rather than long-term investments
- Believe in technical trading patterns more than traditional valuation metrics
Another way to assess aggressive trends is through your portfolio. What part of the total capital do you feel comfortable assigning as “venture capital?” This is capital you would do feel comfortable losing at the same rate you would win. For example, everyone would be fine earning 20% ROI with their investment … but could you lose 20%? If so, it’s money you’re willing to risk.
Aggressive negotiation versus aggressive investment
Traders, by nature, are more aggressive. But that doesn’t mean all traders are gunmen. In addition, long-term investors tend to be more passive, but that doesn’t mean there isn’t any long-term investment risk. It is important to understand where the balance of each of them lies and what dictates an aggressive investment strategy.
For traders, aggressive strategies include daily trading and even swing trading, especially on the margin. Naked positions are the ultimate form of aggressive investing and something like bare shorting is directly prohibited. Aggressive trading usually follows the rule of not holding a position longer than necessary to make a profit. As a result, aggressive marketers need to be fast and loose with their business, increasing the margin of error.
Aggressive investment strategies tend to focus less on buying and selling and more on allocation. This is where a portfolio of stocks comes into play. While a typical portfolio may have an allocation of 68% equity, 10% fixed income, 10% commodities and 12% bonds, an aggressive portfolio will tend more towards equity. A 100% securities portfolio is the epitome of an aggressive strategy and carries more and more risks as you get closer to retirement.
There are levels of aggression. Margin trade is aggressive; negotiate volatile actions on margin trends in gun territory. Similarly, a portfolio of stocks is aggressive; a wholeequity portfolio of small-cap growth stocks take the risk a little more. Aggressive investors need to find the balance they are comfortable with.
Aggressive strategies are not always active strategies
The time horizon plays an important role in risk, which affects the aggressiveness of investors. The closer you get to retirement, the more conservative you will need to be to protect yourself from risk. Conversely, the sooner you are on the investment timeline, the more aggressive you can afford. A long time horizon also offers you the opportunity to follow a passive-aggressive strategy: passive investment, aggressive assignment.
A passive-aggressive strategy offers the best of both worlds. It allows you to start portfolio growth using an aggressive compound from the start. And because your time horizon is long, you don’t need to rebalance often. The result is an aggressive portfolio that benefits from this natural market growth. This can continue for decades, until it’s time to pivot toward a more conservative approach.
Does an aggressive investment strategy suit you?
What is an investment strategy? For some gunmen, it is the best way to earn quickly and win the market. For investors with a long build-up phase ahead, it’s the key to composing faster. But for retirees or prudent investors, it could pose a dangerous risk. It all depends on the location of the investment time and the appetite for risk.
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If you can have a stomach risk or have a good tolerance for the risk capital of your portfolio, you will probably benefit from an aggressive strategy. If the idea of losing more than you traded with a bad bet would sink your heart, it’s best to stick with a traditional assignment.