What is Aggressive Growth?
How to Know When Mutual Funds are 'Aggressive Growth'
Aggressive growth is a mutual fund investment objective that seeks high capital gain potential among growth stocks, which are stocks of companies that are expected to grow at a rate faster in relation to the overall stock market. In simpler terms, aggressive growth is an intensified, greater growth-oriented version of the general growth investment strategy.
Therefore 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.
How to Know Your Fund is Aggressive Growth
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 be sure a particular fund is an aggressive growth fund, an investor can look at one of the best mutual fund research sites and 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.
Investors should be cautioned that a mutual fund with the words "aggressive growth" in its name can be (and often is) categorized as a growth fund. There is a difference in meaning in category and objective: In simple terms, category is a label for reference and objective is an investment strategy or philosophy. Therefore, if you already have a growth fund in your portfolio, you may not need an aggressive growth fund in addition to it. See stock overlap for more cautions on having funds with similar investment objectives.
A good way to be sure you have 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 have a beta significantly above 1.00, such as 1.10 or more.
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 will likely have a large-cap stock fund already in your portfolio. You don't really need more than that. A few examples include Fidelity Capital Appreciation (FDCAX) and Vanguard Strategic Equity (VSEQX). FDCAX has a beta (compared to the S&P 500) of 1.14 and VSEQX has a beta of 1.24. Both are mid-cap stock funds with objectives of aggressive growth.
Data is from Morningstar, Inc.
You will also want to know your risk tolerance before considering adding an aggressive growth element to your mutual fund portfolio.
Debunking the Dave Ramsey Concept of Aggressive Growth
Investing strategies and concepts are often made to be complex and Dave Ramsey's investment philosophy makes things easier for the beginning investor. One positive aspect of the Dave Ramsey Mutual Fund Portfolio is that it is simple. All an investor needs to know is to have four mutual funds -- one aggressive growth fund, one growth fund, one growth and income fund and one international fund. However, in the opinion of your humble Mutual Funds Guide, the positive aspects stop there.
Aggressive growth is not a formal category of mutual fund but rather an investing style. This can be confusing and potentially harmful for many investors. For example, some growth stock funds can be considered aggressive growth. The average investor won't easily recognize the difference. Therefore simple does not always translate into better. Dave Ramsey's investment recommendations can be deceptively simple. You may want to take just a few extra minutes and look at an alternative, more diversified approach to building a portfolio of mutual funds.
See Also: Aggressive Mutual Fund Portfolio Example
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.