An aggressive risk profile revolves around having a higher risk tolerance and higher expected or anticipated returns compared to moderate and conservative profiles. This means that an aggressive investor is someone willing to take on higher risks in pursuit of potentially higher returns. He or she is a financial daredevil who is fearless and confident with his or her financial decisions. An aggressive investor believes that the best rewards come from taking risks.
The Determined Investor: The Key Characteristics of an Aggressive Investor
What sets aggressive investors apart from both moderate investors and conservative investors is their high risk appetite or high risk tolerance. These investors have a risk-reward profile that is based on the idea that with high risk comes high reward. The subsequent discussions enumerate and describe the key characteristics of an aggressive investor based on psychological traits, financial characteristics, and investment behavior.
Behavioral Mindset
The psychological traits or behavioral mindset of investors with an aggressive risk profile is often a mixed bag of confidence, excitement, impatience, and fortitude. The following are the specific psychological traits of an aggressive investor:
• High Risk Tolerance: This investor loves taking risks. He or she prefers investing in assets or securities that are considered risky. This investor is also comfortable with price swings or market fluctuations and potential losses.
• Long-Term Outlook: An aggressive investor understands that investment returns can be volatile in the short term but can be substantial over a longer period. Remember that he or she remains calm even during market fluctuations.
• Growth-Oriented: This investor focuses on substantial growth in invested capital or capital appreciation rather than income generation. This growth-oriented mindset in investing is aligned with his or her long-term vision.
• Generally Confident: An aggressive investor believes in his or her capabilities to analyze and understand investments using techniques like fundamental analysis and technical analysis and make informed investment decisions.
• Random Impatience: This investor can also be impatient from time to time despite his or her long-term outlook. He or she may desire to see quick returns on investments. This is a recurring struggle that can influence decisions.
Financial Position
The financial position or financial characteristics of an aggressive investor provide him or her with some safety blanket against the risk of losses. These characteristics can serve as leverage and a source of confidence. Take note of the following:
• Relatively Young Age: Most aggressive investors are relatively young. Young people often have a longer investment horizon. Their young age also provides them with an adequate timeframe to ride out the ups and downs of the market.
• High Disposable Income: Another defining characteristic of an aggressive investor is his or her high disposable income. This excess income shields the investor from potential losses without significantly impacting on his or her lifestyle.
• Good Financial Health: Having a reliable source of income allows an aggressive investor to fund his or her lifestyle without depending on his or her investments. He or she also has manageable debt levels and zero high-interest debt.
• Has Emergency Funds: This investor also has cash reserve to cover unexpected expenses or allow him or her to survive during periods of having no income. Most also have different insurance policies to cover financial uncertainties.
Investment Preferences
The investment preferences of an aggressive investor represent another defining characteristic. This investor has decisions and choices that are considered riskier. Below are the following investment preferences of an aggressive investor:
• Focus On Equities: The average aggressive investor often invests in stocks or equities. He or she may also invest in equity-focused pooled funds. Note that investing in stocks often comes with higher risks than debentures or bonds and money markets.
• Specific Stock Choices: It is also worth noting that there are types of stocks that have higher risks and higher return potentials. Examples include small-cap and mid-cap stocks, growth stocks, speculative stocks, and penny stocks.
• Alternative Choices: Some investors with an aggressive risk profile may also consider investing in other high-risk assets or securities. These include commodities, options and futures contracts, cryptocurrencies, and collectibles, among others.
• Investment Diversification: Remember that an aggressive investor focuses on growth. However, to manage risks and lessen exposure to asset-specific risks, he or she also often diversifies his investments across different asset classes and securities.
• Active Management: There are also aggressive investors who prefer active investing over passive investing. This involves researching and analyzing investment opportunities and actively managing the portfolio through regular trading.