Aggressive growth is a mutual fund investment objective. It seeks high capital gains through growth stocks. The high risk relative to other strategies is offset by higher potential returns in the long run.
- Aggressive growth investing aims to take on greater risk in return for greater rewards.
- Aggressive growth mutual funds are those with higher beta averages measuring their ups and downs.
- Depending on your risk tolerance, simple growth investments might be better for you.
- Younger people with more time to invest may be better suited for aggressive growth mutual funds.
What Is Aggressive Growth?
Aggressive growth is a style of investing that comes with higher market risk compared to a diversified investing approach. As it pertains to the stock market in general, higher-risk investments can have greater returns in the long term.
A growth stock is an equity investment in a company that is expected to grow at a faster rate compared to the overall stock market. Aggressive growth is like an intensified, greater growth-oriented version of the general growth investment strategy.
How Does Aggressive Growth Work?
Aggressive growth investors can expect to see higher volatility than those using a general growth strategy; this is measured by beta. Beta is a measure of a 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 higher than 1.00.
Types of Aggressive Growth Mutual Funds
Many aggressive growth stock mutual funds have the term "aggressive growth" or "capital appreciation" or "capital opportunity" or "strategic equity" within the fund name. But this is not always the case. To find an aggressive growth fund, you must do some research. Along with beta, the Sharpe Ratio and standard deviation are other ways you can look at a fund's risk.
One approach to finding a mutual fund's objective is to visit one of the best mutual fund research sites. Then, look for "aggressive growth" under the Fund Objective. You can also look for the stated objective within the mutual fund prospectus. Or go straight to the mutual fund website and find it there.
There can be a large overlap in funds; this means they have the same holdings. For that reason, if your portfolio already contains a growth fund, you may not need to add an "aggressive" growth fund. Be sure to research the details.
In order to diversify, a smart investor who has a large-cap stock fund will look for an aggressive growth fund that invests in mid-cap stocks or small-cap stocks. That's because you don't want to work toward the same objective you've covered with the large-cap fund.
Aggressive growth funds often invest in newer companies, or they may invest in those in the hottest economic sectors.
A few examples of aggressive growth mutual funds as of August 13, 2020, are Fidelity Select Technology (FSPTX) and Vanguard Strategic Equity (VSEQX). FSPTX has a five-year beta (compared to the S&P 500) of 1.13. VSEQX has a beta of 1.30. Both are mid-cap stock funds with the objective of aggressive growth.
Alternatives to Aggressive Growth
Aggressive growth is an abstract term. That means that the definition may not be specific enough for most people to detect. For instance, all aggressive growth funds can be categorized as growth; some (but not all) growth funds may be considered aggressive.
Keep in mind that aggressive growth funds are not right for everyone. In most cases, the longer you have until you need to begin taking money from your investment account, the more risk you can take. This suggests that those who are younger may be able to take more risks than those closer to retirement. You will also want to know your risk tolerance before thinking about adding an aggressive growth stock mutual fund to your portfolio.
Conservative funds can be better options for the risk-averse. That's because they focus more on fixed-income investments.