When compared to a diversified investment strategy, the market risk associated with the aggressive growth investing style is much greater. When it comes to the stock market in general, assets that carry a higher level of risk often have the potential to provide larger returns over the long run. An equity investment in a firm that is anticipated to expand at a pace that is higher than the general rate of growth of the stock market is referred to as a growth stock. The general growth investment approach is analogous to an intensified and more growth-oriented variant of aggressive growth, known as aggressive growth.

Working

In most cases, the operation of an aggressive growth fund is similar to that of any other kind of mutual fund. The managers of the fund decide which investments to make and how those investments should be distributed across the various portfolios. Because the goal of an aggressive growth fund is to achieve higher growth than that of an index or any other benchmark, the management of the fund selects assets that they believe will achieve the required rate of growth.

It comprises assets obtained from financial institutions such as banks and insurance companies, as well as other suppliers of financial services. The product summary states that the primary risk arises from the restricted scope of the investment strategy, which consists of solely investing investments in firms that provide financial services.

What It Implies for Those Who Invest on Their Own

Investors who use an aggressive growth strategy might anticipate greater levels of volatility than those who use a broad growth approach; a fund's beta is used to assess this. It indicates how a fund may react to changes in an index, such as the S&''P 500 or the general market.

To provide a point of comparison, an aggressive growth fund is often judged against another index with a beta value of 1.0. This indicates that an aggressive fund will have a beta of more than 1.0, while a normal growth fund would have a lower beta, for example, 0.85. A beta of.85 indicates that the fund is anticipated to generate returns that are 15% lower than its benchmark. In contrast, a beta of 1.1 indicates that the fund managers anticipate it will perform 10% worse or better than its benchmark.

For instance, if the value of your aggressive growth fund drops by one percent, you would incur a loss of one-tenth of one percent more than you would with a growth fund with a smaller beta (if the two were compared to the same index). Therefore, the bigger the beta, the greater your potential loss if the fund's value drops. On the other hand, if the value of your fund rose by 1%, you would have gained 1.1%.

To put this into perspective, the S&''P 500 lost 12.7% from the beginning through the middle of the year. During that period, a fund with a beta of 1.1 would have lost 13.97%. You would have seen a loss of $1,397 in six months if you had invested $10,000 in an aggressive growth fund that had a beta of 1.1. Using the identical comparison index, a mutual fund with a beta of 0.95 would have suffered a loss of $1,206.50.

Types

The phrases "aggressive growth," "capital opportunity," and "strategic equity" may be found in the titles of several stock mutual funds that focus on rapid economic expansion. You will need to conduct some research to identify a fund that specializes in fast development. You may have a better understanding of the risk associated with a fund by looking at its beta, as well as its Sharpe Ratio and standard deviation.

Visiting a website specializing in mutual fund research is one method for determining the purpose of a mutual fund. Check the Fund Objective to see whether it has the phrase "aggressive growth" in it. You may also seek the stated purpose inside the prospectus of the mutual fund, or you can go directly to the mutual fund's website and locate it there. Investments made by aggressive growth funds are often made in younger firms, or they may be placed in businesses operating in the hottest economic areas.

Conclusion

The aggressive growth investing strategy aims to generate bigger returns by accepting greater levels of risk. The beta, which compares a mutual fund's level of volatility to that of an index, is greater for aggressive growth mutual funds. Investors with a larger appetite for risk and a more long-term perspective benefit the most from participation in aggressive growth mutual funds.