Investing in Aggressive Growth Funds
Chances are your retirement plan offers one or more stock funds to choose from. If it is consistent with your investment objectives and your investment risk tolerance, you may want to consider investing a portion of your plan in an aggressive growth fund.
Risks and Rewards
Aggressive growth funds, as the name indicates, are stock funds that are growth-oriented. Included in aggressive growth funds are several options like “small-cap” funds, “emerging market” funds, as well as various kinds of international funds. Aggressive growth funds tend to invest in smaller, fast-moving companies in developing sectors with the potential for rapid growth (hence the name), such as high-tech or biotechnology. They may also invest in equities that have fallen out of favor on Wall Street, but appear ready for a comeback.
Because they invest in companies that are often less known and not as established as the companies that make up the Dow Jones Industrial Average (DJIA), aggressive growth funds tend to exhibit volatile behavior. For instance, when the market goes down, an aggressive growth fund may go down more than the DJIA. Conversely, when the market goes up, aggressive growth funds often go up more. The goal of aggressive growth funds is to achieve higher returns than other stock funds.
Aggressive growth funds are best suited for long-term investors with the intestinal fortitude to bear the market’s worst downturns while seeking the strongest returns. For example, an investor may want to allocate some of his or her portfolio to aggressive growth funds to potentially accumulate as much as possible over a long time horizon. These funds may be especially suitable for younger investors with 25, 30, or 35 years until retirement.
Don’t Forget Diversification
Regardless of how aggressively you would like to invest, keep in mind the crucial benefits of allocating your money across investments that behave differently.
If you invest in an aggressive growth fund, you may want to balance its inherent risk with investments that have different risk characteristics such as growth and income funds, bond funds, and money market funds.
A financial planner can help you determine the investment allocation that’s best suited for you and your goals.