What is Aggressive Growth?
Aggressive Growth Stock Mutual Funds - Definition and Examples
When you hear the investing term, aggressive growth, it's generally associated with a strategy or style of investing that is associated with higher market risk compared to a diversified investing approach. As it pertains to the stock market in general, higher risk investments have the potential for greater returns in the long term. But is aggressive investing right for you?
What Are Aggressive Growth Mutual Funds?
Aggressive growth is a mutual fund investment objective that seeks high capital gain potential with growth stocks. A growth stock is an equity investment in a company that is expected to grow at a rate faster in relation to the overall stock market. Aggressive growth can be considered an intensified, greater growth-oriented version of the general growth investment strategy.
Risk and Reward of Aggressive Growth
Aggressive growth investors can expect to see higher volatility (measured by beta) than that of the general growth strategy. In simple terms, an aggressive growth mutual fund investment strategy is one that has high relative risk compared to other funds but may also have higher potential returns in the long run.
How to Identify an Aggressive Growth Stock Mutual Fund
Many aggressive growth stock mutual funds have the term "aggressive growth" or "capital appreciation" or "capital opportunity" or "strategic equity" within the fund name. However, this is not always the case. To identify an aggressive growth fund, an investor do just a little bit of research.
One approach to identifying a mutual fund's objective is to use one of the best mutual fund research sites. You can look for the specific mention of "aggressive growth" under the Fund Objective. Investors can also look for the stated objective within the mutual fund prospectus or they may go directly to the mutual fund family website and find the objective there.
A slightly more advanced approach to identifying an aggressive growth fund is to look at its beta, which is a measure of a particular fund's movement (ups and downs) compared to the overall market. For reference, the market is given a beta of 1.00. An aggressive growth fund will typically have a beta higher than 1.00.
Aggressive Growth vs. Growth
Investors should be cautioned that aggressive growth funds and growth funds may have significant overlap, which means that the both may have similar holdings. Therefore, if you already have a growth fund in your portfolio, you may not need an aggressive growth fund in addition to it.
Examples of Aggressive Growth Mutual Funds
For purposes of diversification, a smart investor will look for an aggressive growth fund that invests in mid-cap stocks or small-cap stocks. The reasoning for this is that you may already have a large-cap stock fund already in your portfolio and you won't want to duplicate any objective you've already covered with another fund.
A few examples include Fidelity Select Technology (FSPTX) and Vanguard Strategic Equity (VSEQX). FSPTX has a beta (compared to the S&P 500) of 1.19 and VSEQX has a beta of 1.04. Both are mid-cap stock funds with objectives of aggressive growth.
Aggressive growth is an abstract term, meaning that the definition may not be specific enough for the average investor to detect. For example, all aggressive growth funds can be categorized as growth and some (but not all) growth funds may be considered aggressive. For a simple definition of aggressive growth, you may take a look at Dave Ramsey's mix of mutual funds.
Keep in mind that aggressive growth funds are not right for every investor. Generally, the longer you have until you need to begin withdrawals from your investment account, the more risk you can take. This suggests that younger investors may generally take more risk than those closer to retirement. You will also want to know your risk tolerance before considering the addition of an aggressive growth stock mutual fund to your portfolio.
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.
Financial Dictionary. "Aggressive Growth Fund." Accessed February 21, 2020.
Fidelity.com. "All about alpha, beta, and smart beta." Accessed February 21, 2020.