Invest Aggressively Now?

Whether or not you should invest aggressively depends on your age, risk tolerance, and financial goals.

If you're in your 30s, you have 30 or more years to profit from the investment markets before you are likely to retire. Temporary declines in stock prices won't hurt you as much because you have years to recoup any losses. So if your stomach can handle the volatility of stock prices, now is the time to invest aggressively.

If you're in your 40s, you can still catch up by making some lifestyle trade-offs. You can supercharge your saving and investing to prepare for retirement. If you haven't begun saving in your employer's retirement plan, start now. If you've been investing, strive to contribute the maximum amount per year.

If you're in your 50s, it's time to examine your future goals and explore your current and desired future lifestyle. If you're on track for retirement, keep doing what you've been doing in previous decades. As you edge closer to your retirement date, you'll probably dial back your stock exposure and increase the allocation of your portfolio to bonds and cash.

If you're nearing retirement, you may not want to invest aggressively because you have less time to recover from losses. However, if you have more than five years until retirement, you can afford to be more aggressive.

Risk tolerance

Aggressive investors, or those with a high-risk tolerance, are comfortable with the possibility of losing money in pursuit of potentially better returns. They tend to be knowledgeable about market dynamics and are willing to take on more volatile investments, such as stocks, equity funds, and exchange-traded funds (ETFs). Their focus is typically on capital appreciation rather than preserving their principal investment. As a result, their portfolios often consist predominantly of stocks, with little to no allocation to bonds or cash.

On the other hand, conservative investors exhibit lower risk tolerance and seek investments with guaranteed returns. They prefer investments with little to no volatility and are often closer to retirement age. Conservative investors tend to favour low-risk options such as bank certificates of deposit (CDs), money markets, and U.S. Treasuries, which offer income and capital preservation.

Moderate investors, as the name suggests, strike a balance between risk and return. They aim to grow their money while managing potential losses and typically adopt a "balanced" strategy. Their portfolios usually include a mix of stocks and bonds, with adjustments made based on their specific goals and risk appetite.

It's important to note that risk tolerance is not static and can change over time as an investor's circumstances evolve. Additionally, it is influenced by factors beyond an investor's control, such as stock volatility, market swings, economic events, and regulatory or interest rate changes.

When determining their risk tolerance, investors should consider their financial goals, time horizon, and income. Online risk tolerance assessments and questionnaires can also provide valuable insights. By understanding their risk tolerance, investors can make informed decisions about the types and amounts of investments that align with their comfort level and financial objectives.

Time horizon

The time horizon of your investments will depend on your financial goals and your risk tolerance. For example, if you are saving for a down payment on a house in two years, your time horizon would be considered short-term, and you would want to invest in assets that can be easily converted to cash with minimal volatility. On the other hand, if you are investing for retirement, you have a long-term time horizon, and you can generally afford to take on more risk.

As your time horizon changes, so will your investment allocations. For example, as you get closer to retirement, you may choose to hold more cash and fixed-income securities and fewer equities to minimize your risk exposure.

It's important to note that your age, income, and lifestyle also play a role in determining your investment time horizon. Additionally, if you have multiple financial goals, you may have to juggle investments with different time horizons.

Future needs

When considering whether to invest aggressively, it's important to keep in mind that this strategy is typically associated with a higher degree of risk. While taking on more risk can lead to higher returns, it's crucial to ensure that you are making informed decisions that align with your financial goals and risk tolerance. Here are some key points to consider regarding your future needs:

• Time Horizon: Aggressive investing often involves a longer time horizon, allowing you to ride out market fluctuations and giving your investments more time to grow. If you have a long-term investment goal, such as saving for retirement, starting early with an aggressive strategy can be beneficial. However, it's important to periodically review and adjust your strategy as you get closer to your goal.
• Risk Tolerance: Assess your risk tolerance and ensure that you are comfortable with the potential volatility of an aggressive investment strategy. Understand that aggressive investing accepts more risk in pursuit of greater returns. Be prepared for the possibility of losses as well as gains.
• Diversification: While taking on risk can be beneficial, it's important to diversify your investments to manage risk effectively. Diversification helps spread out your risk by investing in a variety of assets, industries, and geographic regions. This way, you're not putting all your eggs in one basket.
• Long-Term Perspective: Aggressive investing usually requires a long-term perspective. Short-term market fluctuations can be common, and trying to time the market is often challenging. Focus on your financial goals and stick to your investment strategy through market ups and downs.
• Professional Guidance: Consult a financial professional to help you determine if aggressive investing is right for you. They can provide personalized advice based on your unique circumstances, goals, and risk tolerance.
• Regular Review: Even if you choose an aggressive strategy, it's important to regularly review and rebalance your portfolio. Market movements can cause your asset allocation to deviate from your target levels. By reviewing your portfolio periodically, you can make any necessary adjustments to stay aligned with your goals.

Remember, aggressive investing may not be suitable for everyone. It typically suits young adults with a higher risk tolerance and a longer investment horizon. If you choose to invest aggressively, make sure you understand the risks involved and ensure that it aligns with your future financial needs and goals.

Ability to save

The ability to save is a key factor in deciding whether to invest aggressively. If you have a strong ability to save, you can afford to take less risk and still meet your financial goals. On the other hand, if you can't save as much, you'll need to be more aggressive with your investments to reach your goals.

• Income: Evaluate your monthly income and expenses to determine how much you can realistically set aside each month. If you have a high income and low expenses, you may have a greater ability to save.
• Financial obligations: Consider any financial obligations or expenses that may impact your ability to save. For example, if you have a mortgage, student loans, or other debt payments, your ability to save may be limited.
• Short-term goals: If you are saving for short-term goals, such as an emergency fund, a down payment on a house, or a wedding, you may need to prioritise saving over aggressive investing. This is because short-term goals typically require more immediate access to cash.
• Risk tolerance: Your risk tolerance also plays a role in your ability to save. If you are comfortable with taking on more risk, you may be willing to invest aggressively. However, if you have a low-risk tolerance, saving may be a more suitable option.
• Time horizon: The time horizon for your financial goals is another important factor. If you are saving for long-term goals, such as retirement, you may have a greater ability to invest aggressively, as you have more time to ride out market fluctuations.

It's important to carefully assess your ability to save and consider seeking advice from a financial planner or advisor to determine the right approach for your personal circumstances.

Age

The decision to invest aggressively depends on several factors, including age, which significantly influences an individual's investment strategy and portfolio allocation. Here are some insights into how age impacts investment approaches:

20s: Begin Investing

Young investors in their 20s are often encouraged to start investing early, taking advantage of compound interest and the long-time horizon until retirement. This group tends to have a higher risk tolerance but may have limited income for investments. A common strategy is to allocate 80% to stock funds and 20% to bond funds, maximizing growth potential while also providing some stability.

30s: Career-Focused

For those in their 30s, investing becomes more crucial, especially if they haven't started already. This decade is essential for making a habit of putting money away, even while managing other financial commitments like mortgages or starting a family. A recommended strategy is to invest 10% to 15% of income, prioritizing retirement savings and taking advantage of any company 401(k) matches.

40s: Retirement-Minded

As individuals enter their 40s, the focus shifts to retirement planning. It's recommended to save aggressively, aiming for 15% of annual income, and continue maximizing contributions to 401(k) and IRA accounts. This is also the time to consider reducing or avoiding debt to free up more money for savings. Aggressive assets like stock funds are still suitable, but careful selection of investments with a solid track record is essential.

50s and 60s: Approaching Retirement

In the 50s and 60s, the investment strategy starts to shift towards preservation of capital and stability. Some investments may be moved from aggressive stocks to more stable options like bonds and money market funds. This is also the time to seek professional advice and carefully plan for retirement, ensuring a secure financial position.

70s and 80s: Retirement

During retirement, the focus shifts from growth to income generation. Investments are typically directed towards stocks that provide dividend income or fixed-income bonds. Social Security benefits and company pensions also come into play. Required minimum distributions (RMDs) from retirement accounts may be necessary, depending on age.

In summary, age plays a crucial role in investment strategies, with younger investors typically tolerating more risk to maximize growth, while older investors focus on capital preservation and income generation as retirement approaches. It's important to note that these are general guidelines, and individual circumstances, risk tolerance, and financial goals should always be considered when making investment decisions.

Frequently asked questions