Most investors recognize that aggressive investments have the potential to produce higher returns than the more conservative choices in your portfolio. But they can also suffer bigger losses. As well, aggressive stocks are often more highly leveraged and volatile than conservative stocks.

Understanding all this, there are still very good reasons to turn to aggressive stocks. And there are ways to earn big returns without exposing yourself to excessive risk. Here are 4 principles that we use to select our growth stock picks for Stock Pickers Digest, our newsletter for the aggressive portion of investors’ portfolios.

1. Limit aggressive holdings to 30% of your overall portfolio. Because aggressive stocks expose you to a greater risk of loss, we recommend limiting your aggressive holdings to no more than about 30% of your overall portfolio.
   
   That’s not an invariable number. Ultimately, the percentage of your portfolio that you should hold in either conservative or aggressive investments depends on your personal circumstances and risk tolerance. An investor with a longer time horizon or without the need for current income from a portfolio can invest more money in aggressive growth stock picks. But we think 30% is a good rule of thumb.
2. Focus on investment quality when looking for aggressive stocks with the potential for higher returns. When we look for aggressive investments, we zero in on companies that have established a business and have at least some history of building revenue and cash flow. We also look for companies that stand to benefit as the economy continues to improve, and have proven management and long-term growth plans.
   
   That’s very different from so so-called concept stocks, many of which are start-ups or companies that look to profit from next week’s or next year’s investor fad. These companies can generate big returns in a good year. In the long run, though, they are likely to cost you money.

For a rising portfolio Learn everything you need to know in 'How to Find the Best Growth Stocks' for FREE from The Successful Investor. Canadian Growth Stocks: CGI Group, CAE Inc., Fortis Inc. Stock and more.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

3. Hold a diverse aggressive portfolio: As with your more conservative holdings, we recommend that you cut your risk by spreading your aggressive holdings across the five main economic sectors (Manufacturing & Industry; Resources; Consumer; Finance; and Utilities). Your emphasis may diverge. In the search for greater gains, you may choose to invest more heavily in Manufacturing and Resources, the two riskiest sectors. If so, take care to spread your money out across the many industries within each of these sectors. That way, you protect yourself from an unforeseeable industry downturn.
4. Downplay stocks in the broker/media limelight: That limelight fosters bloated investor expectations. Stocks that are talked up like this may seem like ideal candidates for big gains, with lots of investors getting on board. But when stocks fail to live up to those expectations, brutal downturns follow.
   
   Applying that aspect of our conservative philosophy to an aggressive portfolio leads us to stay out of most new issues. That’s because most new issues come to market when it’s a good time for the company or insiders to sell. That’s rarely a good time for you to buy.

If you’re looking for aggressive stocks with the potential for returns of 50% or more in 6 months or less, you should subscribe to Stock Pickers Digest. The latest issue gives you our full analysis, including clear buy/sell/hold advice, on 20 stocks that may be suitable for the part of your portfolio you devote to aggressive investing. And as a new subscriber, you can save $50.00 off the regular annual subscription rate. Click here to learn how.