“Aggressive” is a term we hear a lot in the investing world. It’s certainly a loaded word—but what does it actually mean? Are you an aggressive investor? And if you are, is this good, bad or somewhere in between?
It’s about your investments, not your personality
When we talk about aggression in investing, we’re referring more to the investments a person has, and less to the person themselves. According to Sorted, an aggressive investor is someone who:
Doesn’t mind seeing their investment go up and down in value
Has a long time horizon (in other words, doesn’t mind waiting a long time for their money)
Doesn’t need income from their investments
Tends to get higher returns over the long run
When you dig into these things, you can see that investing aggressively has a lot less to do with your personality, and a lot more to do with your choice of investments.
What aggressive investing looks like
In practice, aggressive investing will tend to trend towards things that are risky, volatile, or both. A conservative investor will invest in things that are neither risky nor volatile. So an aggressive investor’s Sharesies portfolio is more likely to skew towards higher risk funds, like the US 500 or Emerging Markets, rather than lower risk funds like NZ Bond.
It’s helpful to think of aggressive investing as shades of grey, rather than black and white. A portfolio isn’t aggressive or conservative. Rather, it’s either very aggressive, very conservative, or somewhere in between. If your portfolio had $99 worth of the US 500 fund, and $1 worth of the NZ Bond fund, that’s a pretty aggressive portfolio—you’re accepting a roller coaster ride of ups and downs, for the chance of higher longer-term returns. And if you had things switched the other way around, you’d be mostly conservative—you’d expect a pretty flat ride up the hill, but give up the chance of that ride being more of a mountain than a hill.
Why invest aggressively?
The golden rule of investing is that if you’re willing to take more risk, you’re also able to get a shot at better returns—but the tradeoff is that there’s a higher chance of making no return at all, or even going backwards and ending up with less than you had when you started. That golden rule is the main reason people invest aggressively. They take a bit more risk and hopefully make more money.
If you’re young, you have a bit of a ‘get out jail free’ card for this golden rule—a long time horizon. Remember, your time horizon is how long you’re willing to leave your money invested for. If you don’t need your money any time soon, you could choose investments with more volatility. A more volatile investment will have more risk in the short term, as it may decrease in value by a significant amount overnight. But that same volatility goes the other way as well, which can give you a bigger return in the long term. If you can wait out short-term ups and downs with a long time horizon, then an aggressive investment portfolio may be suitable for you.
On the other hand, if you’re in your late 60s and getting ready to retire, you’re probably leaning towards a more balanced or conservative approach, as you may want to start spending that money soon.
If you’re in your 20s, you can probably get away with more aggressive investing. Even if you’re not investing for retirement, you can still have a pretty long time horizon—15 years would only put you in your 40s, and that’s long enough to really ride those ups and downs of the share market.
When is aggressive investing not right for me?
Being young doesn’t automatically make aggressive investing a natural fit for you. It all comes down to the goal you’re investing towards. If you’re about to sell your shares to put a deposit on a house, then aggressive investing may not be for you—after all, the last thing you need is for your house deposit to become smaller overnight from a market dip!
It’s about the way your investment’s value today connects to your goals. If your goal is around the corner, then your investment losing value may affect your ability to reach that goal. But if your goal is years in the future, then a loss in value today or tomorrow isn’t going to make a difference.
And remember what we said earlier in this post—aggressive investing isn’t an all or nothing deal. You can divide your portfolio up in any way you want, whether that’s 100% aggressive, 100% conservative, or somewhere in between.
The team at Sorted have put together a great quiz to help give you a steer when you make these decisions. Give it a go, and let us know your results!
Ok, now for the legal bit
Investing involves risk. You aren’t guaranteed a return, and you might lose the money you started with. Before investing, you should read your fund’s product disclosure statement. It contains the investment objectives, risks, fees and other information. You should carefully consider this information in relation to your investment time frames and goals.