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What Is Aggressive Asset Allocation?

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  • Written By: Mary McMahon
  • Edited By: Shereen Skola
  • Last Modified Date: 03 September 2016
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Aggressive asset allocation prioritizes high volatility investments with a chance for big gains in the mix of an investment portfolio. The portfolio includes a larger grouping of investments with high performance with the goal of making big earnings in the short to medium term. Diversity is still important in the distribution of assets to reduce the risks of taking a big hit if a particular sector or type of investment declines rapidly because of economic conditions or other factors. This approach can be guided by a broker or adviser, or investors can undertake their portfolio management on their own if they feel confident and have sufficient experience.

This contrasts with conservative to moderate asset allocation, where the mix of investments is less volatile. Investors who use an aggressive approach typically are early in their careers, with some time to recover if they take losses. At age 25, someone might not be planning to retire for 40 years, and has time to build up investments. As investors age, they may shift their strategies because the risks are bigger if they take losses, since they may not have time to rebuild their assets.

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Bonds, stock, and cash can all be part of an aggressive asset allocation. This type of investment requires ample research to identify volatile investment vehicles that are likely to yield good returns while avoiding those that might expose people to risks. Stocks making big gains could be a sound investment, if the buyer knows when to sell them to avoid taking a loss, and researches the company first to make sure it isn’t about to fall in value. Research tools can include reviews, annual reports, and commentary from financial experts who follow the markets closely.

Investors may start out their careers with a specific plan. This helps them determine how to balance their mix of assets over time to stay focused on a specific strategy, such as growing a portfolio by a set percentage or retiring at a particular age. The aggressive asset allocation usually comes early, when people want to build up a portfolio as much as possible so it can earn well as the asset allocation becomes more moderate. Someone working with a big principal will earn more interest, even with a conservative approach, and principals can grow rapidly with an aggressive asset allocation strategy.

It is also possible to buy into mutual funds set up with an aggressive asset allocation in mind. These funds provide exposure to earnings with fewer risks, since they are carefully managed. Investors can buy shares in the fund and include them in their portfolios. They can also model their own investments after the mix used by the fund, if they’d rather control their investments directly.

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