Aggressive investing is an investing strategy that can yield high returns – but also entails taking on a lot of risk. An investment strategy that involves aggressive investing is only suitable for investors who can accept substantial risk, and the chance of losses.

The most common form of aggressive investing is to put a large part of your portfolio in stocks (or mutual funds) of less well-established companies without a history of earnings or dividends. Aggressive stocks don’t have the secure hold on the growing, or at least stable, clientele that conservative stocks have. When something goes wrong with aggressive investments, there is great risk of serious, if not total, loss.

We feel that the best investing strategy for most people is to hold the bulk of their investment portfolios in securities from well-established companies. All these stocks should offer good “value” – that is, they should trade at reasonable multiples of earnings, cash flow, book value and so on. Ideally, they should also have above-average growth prospects when compared to alternative investments.

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Our Aggressive Growth Portfolio selections in The Successful Investor or Wall Street Stock Forecaster, or funds with Aggressive ratings in Canadian Wealth Advisor, tend to be more highly leveraged and more volatile than our Conservative recommendations, and they can give you bigger gains and bigger losses. This may be due to financial leverage, or to the risk in their industry or particular situation, or our estimation of upcoming changes in that risk. Keep in mind that these or any aggressive investments should make up no more than, say, a third of most investors’ portfolios.

We look at many stocks before singling out our aggressive-investing favourites, and we try to choose those with as much underlying value and as many hidden assets as possible. This is the best investment strategy for cutting risk, for conservative and aggressive investors alike.

Ultimately, the percentage of your portfolio that should be held in either conservative or aggressive investments depends on your personal circumstances. An investor with a longer time horizon, or without the need for current income from a portfolio, can practice more aggressive investing.

If you take account of your own financial and personal circumstances and temperament, and if you follow the investing strategy that we advise (diversifying across the five main economic sectors, while confining your investments mainly to well-established companies), you will automatically buy some more aggressive growth stocks and some value stocks; you will also automatically buy some more aggressive small-company stocks and some big-company stocks.

However, the economic-sector diversification and overall investment quality of your portfolio is far more important than the relative amounts you invest in value, growth and small stocks