Investing in aggressive ETFs is not for everyone, but investors who can handle the higher risk may be able to benefit from these investments.
Aggressive ETFs combine two types of investments: growth stocks and ETFs. These investments offer an opportunity to achieve significant gains, but they come with a higher degree of risk than many other investments, including different kinds of ETFs.
Investors who can accept higher risks and aren’t afraid of speculative investments can think about targeting aggressive ETFs. However, if selected with proper insight and understanding, an aggressive ETF could lead to a worthwhile payday even for more conservative investors.
Most of these ETFs track a basket of aggressive growth stocks. These companies have the potential to grow bigger than they currently are, leading to above-average sales and earnings. However, many of these companies are small, young, and unproven. This is why there is often a lot of speculation associated with these stocks. Many aggressive growth stocks have not yet secured a stronghold on their market, or they do not currently have a stable clientele base.
ETFs mainly track indexes or assets. With aggressive ETFs, the ETF is may be investing in companies that meet specific growth criteria. Most traditional ETFs are passively managed, which makes their management expenses lower. This can help make aggressive growth investing more appealing. Furthermore, for investors interested in aggressive growth investing, choosing an ETF comes with less risk than if you were to choose one individual aggressive growth stock. The multiple stocks making up the ETF create a buffer because some of the growth stocks within it may increase in value while others go down. If you only hold individual aggressive growth stocks that decrease in value, then you will need to hope they can rebound, or you might be better off selling them.
How to choose aggressive ETFs for your portfolio
One consideration to make for aggressive investing is the current state of the stock market. In general, aggressive growth investing tends to perform better during bull markets. On the other hand, aggressive investing during bear markets can lead to major losses. Always keep this in mind before investing in aggressive ETFs, or any aggressive growth stock.
Like a variety of investments, not all aggressive ETFs are created equal. If you invest in an aggressive ETF, make sure that the ETF does not trade too frequently, or you’ll have higher costs in addition to the higher levels of risk. It is also a good idea to avoid aggressive ETFs that focus on futures or options trading. Those types will also increase the level of risk you to your portfolio.
The iShares Core Aggressive Allocation ETF (AOA) is a popular ETF. Its popularity is likely due to its success and the fact that it holds over $1.2 billion in assets under management. Most of the other popular aggressive picks have significantly fewer assets under management, with nearly every other aggressive ETF having under $1 billion in assets under management.
Consider Your Investing Timeframe
Conservative investors should avoid aggressive ETFs, unless you plan to only allocate a small portion of your portfolio to the aggressive selections.
Aggressive investments are more catered to investors who can accept the risk, and preferably those who have a longer time horizon for the investment. Investors in their 30s and 40s may be ideal candidates. Investors who are just about to enter retirement may want to avoid these ETFs altogether, unless they are open to principle risk. Even so, it might be best for any investor focusing on portfolio diversification to avoid putting more than one-third of their investments into aggressive ETFs.
Do you prefer to track a specific index with ETF investing? Or do you target ETFs that match your investing temperament a mixture of the two?
Nancy Zambell, Chief Analyst of the Financial Freedom Federation, has spent more than 30 years helping investors navigate the minefields of the financial industry. Nancy's book, Make Money Buying & Selling Stocks is an introduction for new investors and a reminder for experienced investors on how to profit in the stock market.Learn More