Aggressive Mutual Fund Portfolio Example
How Aggressive Investors Can Build a Portfolio
You've heard that investing in aggressive mutual funds can be a good idea. But is an aggressive portfolio of mutual funds the best idea for you and your investing needs? If so, what does an aggressive portfolio look like?
Obtaining higher returns with mutual funds is a goal that most investors share. However 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.
Is an Aggressive Portfolio Best For You?
There are three basic types of portfolios: Aggressive portfolios, moderate portfolios and conservative portfolios. 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. Ironically, the one thing about amusement park rides is that they are relatively safe because they keep you strapped in! When it comes to investing, you can "jump off the ride" by selling your funds in the middle of a down market.
This can do damage because you sell at low prices before having the chance of "riding" the share prices back up.
In summary, it is important to choose a ride (or portfolio in this case) that you will be comfortable staying with for the entire ride, which means that your portfolio of mutual funds fulfilled your investment objective and you've reached your financial destination. Here's how to put this investing guidance to work:
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. The reason for this is that aggressive portfolios typically include more stocks than moderate and conservative portfolios. Therefore aggressive portfolios tend to produce greater volatility (ups and downs in price movement) than other types of portfolios.
Aggressive investors are willing to accept periods of extreme market volatility (ups and downs in account value) in exchange for the possibility of receiving high relative returns that outpace inflation by a wide margin.
Example Aggressive Allocation by Mutual Fund Category
A typical aggressive portfolio Asset Allocation is 85% Stocks and 15% Bonds. Here is an example of an aggressive portfolio using the basic types of mutual funds:
30% Large-cap stock (Index)
15% Mid-cap stock
15% Small-cap stock
25% Foreign or Emerging Stock
15% Intermediate-term Bond
The bottom line is that there is only one major mistake to make with building a portfolio of mutual funds and that is to buy 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 portfolio or a conservative portfolio.
Once again, remember that building a portfolio of mutual funds is like choosing rides at an amusement park: You want to choose a ride that you'll enjoy and one where you won't want to jump off after the first scary turn.
Disclaimer:The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.