The Aggressive Investor

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As previously mentioned in What Type of Investor are You? Conservative, Moderate or Aggressive? aggressive investors are more drawn to higher levels of risk in exchange for higher levels of capital growth. They are comfortable with volatility and fluctuations over the shorter to medium term as long as they can achieve their objective of substantially increasing their real capital value over the long term.

Aggressive investment time frame

Typically when making fund selections based on time frames aggressive funds would fall into a 10 year + (long term) investment time frame. However many aggressive investors tend to base their fund selection on their risk profile instead of time frame as they know that their tolerance for risk allows them to tolerate the market fluctuations associated with aggressive funds.

Advantage of adopting an aggressive investment approach

Higher returns – by investing aggressively investors can achieve much higher returns over the period of their investment than those attributable to conservative and moderate investments. The reason for these higher returns is the fact that aggressive funds have larger portions allocated towards riskier asset classes such as property and equity.

Disadvantage of adopting an aggressive investment approach

Risk of capital loss – even though aggressive funds are able to achieve higher returns they are more volatile and the investor therefore risks losing portions of his capital during the term of the investment.

Returns based on time frames

The following estimated figures provide potential investors with an indication of the type of returns that they can expect when investing in Direct Unit Trust Funds. For the purpose of these calculations an annual expected average inflation rate of 6% is assumed. The scenarios and calculations below are for illustrative purposes only and can vary due to market fluctuations.

Estimated returns after 5 years

R10 000 once off lump sum investment
Invested in an aggressive fund yielding an average return of 13% per annum
Invested for a period of 5 years

Will provide an investor with R18 424 after the period, which in today’s terms at an inflation rate of 6% will be worth R13 767.

Estimated returns after 10 years

R10 000 once off lump sum investment
Invested in an aggressive fund yielding an average return of 13% per annum
Invested for a period of 10 years

Will provide an investor with R33 946 after the period, which in today’s terms at an inflation rate of 6% will be worth R18 955.

Estimated returns after 15 years

R10 000 once off lump sum investment
Invested in an aggressive fund yielding an average return of 13% per annum
Invested for a period of 15 years

Will provide an investor with R62 543 after the period, which in today’s terms at an inflation rate of 6% will be worth R26 097.

As can be seen from the above illustrations the longer the time frame the more significant the investment returns regardless of the risk profile.

Not an aggressive investor? Take our risk profile questionnaire to figure out what type of investor you are!

 

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Read more articles by Raul:

The Conservative Investor
The Moderate Investor

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About Author

Raul Jorge is a CFP® professional at PSG. He specialises in estate, investment, retirement and risk planning. Prior to joining PSG, Raul completed his BSc (Honours) in Business Administration through the University of Wales and more recently completed his Postgraduate Diploma in Financial Planning through the University of Stellenbosch.