Aggressive investments have the potential to generate large returns compared to more conservative selections. But they can also give you bigger losses. As well, aggressive stocks tend to be more highly leveraged and volatile than conservative stocks.

But there are ways to earn large returns with less risk in the part of your portfolio you devote to aggressive investing. Here are 4 principles we use to select stocks to recommend in Stock Pickers Digest, our newsletter for aggressive investing:

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, say, 30% of your overall portfolio.
   
   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 stocks. But we think 30% is a good rule of thumb.
2. Focus on investment quality when looking for aggressive stocks with the potential for large returns. When we look for aggressive investments to recommend in Stock Pickers Digest, 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 opposed to 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 large returns in a good year. In the long run, though, they are likely to cost you money.

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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). Compared to a conservative investor, 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/public-relations limelight. That limelight fosters bloated investor expectations. 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 in Stock Pickers Digest. 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 large 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 19 stocks that may be suitable for the part of your portfolio you devote to aggressive investing. What’s more, you can get this issue free. Click here to learn how.