Aggressive Mutual Fund Portfolio Example

How to Build an Aggressive Mutual Fund Portfolio

roller coaster_aggressive portfolio
••• Getty Images

Aggressive mutual funds typically invest in areas that have potential for higher returns than market averages or a relative benchmark. Investors may choose to buy aggressive funds, or they may also build their own aggressive portfolio to suit their risk tolerance and investment objectives. Obtaining higher returns with mutual funds is the goal of all investors, but getting higher returns will almost always require accepting greater market risks. Therefore, before building a portfolio of mutual funds, investors need to define their investment objective and be fully aware of their tolerance for risk.

Deciding If It's Right for You

There are three basic types of portfolios: aggressive, moderate, and conservative. Choosing the right kind of portfolio is like choosing rides at an amusement park; the worst mistake you can make is choosing a ride that frightens you and makes you want to jump off of it during the middle of the ride. When it comes to investing, you can "jump off the ride" by selling your funds in the middle of a down market, which, in turn, does damage because you sell at low prices before having the chance of riding the share prices back up.

It's important to choose a portfolio that you will be comfortable staying with for the entire ride, not just momentarily. You'll know the ride is "over" when your portfolio of mutual funds fulfilled your investment objective, and you've reached your financial destination. As a general rule, the farther you are from retirement, the more aggressive you can afford to be with your portfolio because you have time to make up for down periods in the market.

Who Should Invest in Aggressive Portfolios

An aggressive portfolio is appropriate for an investor with a high risk tolerance and a time horizon longer than 10 years. Aggressive portfolios typically include more stocks than moderate and conservative portfolios, so they tend to produce greater volatility than other types of portfolios that hold lots of fixed investments like bonds. Aggressive investors are willing to accept periods of extreme market volatility in exchange for the possibility of receiving high relative returns that outpace inflation by a wide margin.

If you're investing for the long-term—which you should be—and have decades until you retire, you shouldn't be too concerned with the daily fluctuations of the market. Your focus should be on accumulating enough money to last you in retirement, which is hard to do without taking advantage of the returns that come with stocks. If you start your portfolio off too conservative when you're young, you risk not being able to take full advantage of reinvested dividend payments and compound interest.

Aggressive Mutual Fund Category Example

A typical aggressive portfolio asset allocation is at least 80% stocks, but finding one with 85–90% in stocks isn't uncommon in younger individuals. A good rule of thumb is to subtract your age from 110 and have that percentage of your portfolio in stocks. For example, if you're 25 years old, you would want 85% of your portfolio in stocks and 15% in bonds; if you're 50 years old, aim for 60% in stocks and 40% in bonds. Here is an example of an aggressive portfolio using the basic types of mutual funds:

  • 30% Large cap stock (Index) 
  • 25% Foreign or emerging stock 
  • 15% Mid cap stock (growth) 
  • 15% Small cap stock (growth) 
  • 15% Intermediate-term Bond

Large-cap stocks focus are companies valued at more than $10 billion, mid-cap stocks are companies valued between $1–$10 billion, and small-cap stocks are companies valued under $1 billion. Diversifying your portfolio among all three ensures you have stable, blue-chip stocks, as well as smaller companies with huge growth potential. Intermediate bonds, which mature between 5–10 years, gives you some risk relief in your portfolio and consistent biannual coupon payments.

If you plan to retire in the next 10 years but still want an aggressive portfolio, consider the following example:

  • 35% Large cap stock (Index) 
  • 15% Foreign or emerging stock 
  • 10% Mid cap stock (growth) 
  • 10% Small cap stock (growth) 
  • 30% Intermediate-term Bond

The Bottom Line

The one major mistake when building a portfolio of mutual funds is buying funds that are not right for your goals and risk tolerance. For example, if your mix of mutual funds is too aggressive—or if you think you might lose sleep at night worrying that your mutual fund portfolio might decline in value—you may want to consider building a moderate or conservative portfolio.

Article Sources

  1. American Association of Individual Investors. "AAII Asset Allocation Models." Accessed March 20, 2020.

  2. E-Trade. "Market Capitalization Defined." Accessed March 20, 2020.