Should you invest conservatively or aggressively?

This is a very difficult question to answer, as most of the time it depends on your financial goals and financial lifestyle. Being too conservative or too aggressive is bad, you want a healthy mix of both. Before I answer the question in full, let’s talk about what these terms mean.

What is aggressive investing?

Aggressive investing aims to take on more risk, for the possibility of higher reward. In general, for stocks you measure aggressiveness by how your stocks are outperforming the general stock market. Someone who makes 30% gains in a year where the S&P 500 only gains 7% is probably employing aggressive investment strategies.

Aggressive assets include, but are not limited too: high volumes of a single stock, certain aggressive mutual funds, most cryptocurrencies, options trading, penny stocks, emerging markets, and some real estate ventures.

What is conservative investing?

This is harder to define than aggressive investing, but for the most part it means that someone is not trying to outperform the general stock market. People who invest conservatively can still beat, match, or underperform the market depending on how they allocate their assets. Depending on an individuals risk tolerance, this may mean investing only to beat the 2% inflation rate, or to match the movements of the stock market closely.

Conservative assets include, but are not limited too: blue-chip stocks, stocks with large dividends, index funds, bonds, Treasury Bills, CD’s, and high yield savings accounts.

How to decide on conservative vs. aggressive?

Morgan Housel in “The Psychology of Money” recommends that you allocate your portfolio in a way that bests helps you sleep at night. This is a good measure because it is flexible and intuitive.

For me, I decided to do 15% aggressive and 85% conservative. I trust my conservative investments (mostly index funds), they are my safety net that help me build my long-term portfolio. The other 15% consists of stocks and cryptocurrency that I either hope or expect to do well.

Let’s see how well I am following my own investment goals:

I have 27.9% aggressive and 72.1% conservative.
I have 27.9% aggressive and 72.1% conservative.

Uh oh. I’m over invested in aggressive funds.

That happens! Sometimes a fund will do better or worse than you expect. It is hard to have your portfolio perfectly balanced.

I have a couple options now for how I will rebalance my portfolio. I could sell aggressive stocks and buy conservative assets. The benefit of this is that it is instant. However, selling assets at a gain means I would have to pay taxes on it. If my aggressive funds were down, selling would be a better option as I could lower my tax rate.

Instead, I am going to take the slower route of investing more of my monthly recurring investments into my conservative account. For example, if I normally invest $100 a month with 15$ into aggressive picks and 85$ into safer picks, then for the next few months I will simply put $100 into my conservative accounts. The benefit is that I don’t have to sell anything.

You could also increase your investment rate for the month. Taking the example in the previous month I could skip takeout once a week and have an extra $30 a month to put in my conservative account. So I’d still have $15 for aggressive funds, but $115 for my conservative investments. If you can afford to do this, it is great practice to cut out unnecessary spending. You may find yourself cutting out those expenses permanently (or at least more often).

Are gold and silver aggressive or conservative investments?

It depends on how you buy and sell them. If you are planning for the long-term gold and silver are conservative. The price changes about with inflation and fluctuates little. In the short term, gold and silver can fluctuate quite a bit. If you buy gold/silver with the intent of selling them within a few years or less, that is an aggressive strategy.

Are REITs aggressive or conservative?

It depends on the REIT. Certain locations and timeframes are riskier than others. Picking a REIT will depend on your risk tolerance and how soon you would like to get returns.

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