A conservative portfolio is focused on protecting your principal investment and ensuring steady growth while an aggressive strategy looks for faster gains.
Let’s understand the differences between an aggressive and conservative strategy:
A conservative investment portfolio is focused on preserving the principal investment, avoiding losses as much as possible, while also trying to ensure steady growth. A conservative investor typically has a low risk tolerance and is willing to give up potential high returns in order to maintain stability. It allows them to manage their portfolios to minimize losses even when facing volatility in the market.
Conservative investors look for investments that can provide consistent monthly or annual growth. They look for investments that can provide a positive return on their money with minimum risk. Conservative investors prefer to put their money in safer investments, with a portfolio typically composed of 80% bonds and 20% stocks, to assure stable returns.
In short, a conservative portfolio has a high level of security with predictable and reasonable returns. This type of investment strategy is the safest option, even though the returns are moderate.
The advantages of a conservative portfolio are:
1. Involves low risk
Conservative investors generally don’t react to short-term market shifts. Instead, they remain focused on their long-term goals.
2. Stable income through dividends
Investing in conservative stocks that regularly pay dividends is helpful for retirees and others on fixed incomes. However, they should monitor their investments to ensure that payouts remain consistent and stable.
3. Long-term growth
Conservative portfolios are built for long-term growth, with a mix of stocks and bonds that may underperform compared to others but remain steady in their earnings and growth. Investors typically need to rebalance their portfolios as they go to maintain their target mix.
An aggressive investment strategy tries to maximize returns by taking on a high degree of risk. This strategy typically allocates more to stocks and less to bonds.
Aggressive strategies are focused on achieving higher returns. Young investors with more years to grow their portfolio are typically suitable for taking risks like these, with potential to generate large gains, but also with the potential for significant losses.
Aggressive investing involves more risk but investors can expect at least two significant advantages:
1. Faster growth
With more risk comes more potential for more earnings in a short period of time. Some high-risk investments can increase in value quickly.
2. The benefit of compound interest
When you earn a significant sum from a high-risk investment, you can pocket those earnings in lower risk investments, which can earn compound interest as they grow over the long-term.
Know your risk tolerance levels before you start investing.
If you’re ready to start investing, Bright can build a financial plan that’s tailored to you, a step-by-step guide to reaching your goals.
Bright can start with paying off credit cards up to 8x faster, so you stop spending on interest charges and have more to invest. Bright can also help grow your savings, so you’re covered for emergencies and let your investment grow long term.
If you don’t have it yet, download the Bright app from the App Store or Google Play. Connect your bank and your credit cards, then set a few goals. Bright gets to work right away, building a personalized Bright Plan.
With a postgraduate degree in commerce from The University of Sydney, Pranay has his finger on the pulse of the finance industry. Breaking down complex financial concepts is his forte.