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Aggressive vs Speculative Investor  Thumbnail

Aggressive vs Speculative Investor

Have you ever spoken to a financial advisor, or taken a quiz relative to investing, and as a result someone called you “aggressive”?  It’s a term that gets used pretty frequently in my industry but I think it is often misunderstood.  A lot of people get uncomfortable at the idea that they might be an aggressive investor, but “aggressive” is not the same thing as “speculative”.

The Conservative-Aggressive Spectrum

We have a saying around the office that “risk” and “return” are related, so in order to explain what being an aggressive investor truly means, I want to define what I call the conservative - aggressive spectrum.  Your desire for return, relative to your appetite for downside risk, dictates where you fall on this spectrum.  Conservative investors typically want very little downside potential and are comfortable getting a smaller return for that peace of mind.  Aggressive investors understand and are comfortable with the risk involved with investing but expect to be rewarded for taking that risk with better returns over a period of time. More conservative investors tend to favor investments like CDs, bonds, etc. while more aggressive investors favor things like stocks.  However, just because you are comfortable with risk doesn’t necessarily mean you should be taking it on.  

Avoiding Unnecessary Risk

If you are an investor that leans towards the aggressive side of the scale, there is a way to participate in the stock market without taking on unnecessary risk.  This is a word I’m sure you’ve heard before: diversification.  You can reduce the amount of risk you are taking in your stock portfolio the same way you protect your eggs — by putting them in different baskets!  A speculative approach typically focuses on finding that needle in the haystack, which inherently leads to trying to time markets or being too concentrated in your investments (as opposed to being diversified).  If your portfolio is concentrated, you may own only one stock or a small handful of stocks. If those few companies go under, you’re in big trouble.  If you’re diversified, you may own, for example, 1,000 stocks. Then if one, two, or even 100 of those companies do poorly, you still have the other 900 keeping you afloat.

What does it mean to be an Aggressive Investor?

Just because you have a high tolerance for market risk DOES NOT mean that you should be taking unnecessary or speculative risks with your money.  Whether you are conservative, aggressive, or somewhere in between, those terms are used to identify how much of your portfolio should be in stocks and how much should be in bonds.  However, in any case, the types of stocks and bonds you are investing in should be diversified and done with lots of thought and purpose.

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This commentary on this website reflects the personal opinions, viewpoints and analyses of the Financial Strategies Group, Inc employees providing such comments, and should not be regarded as a description of advisory services provided by Financial Strategies Group, Inc or performance returns of any Financial Strategies Group, Inc Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Financial Strategies Group, Inc manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.

Written by Justin Meyer

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