Ask Kim
The Best Way to Invest Aggressively
I am thinking about investing $5,000 to $10,000 dollars into some kind of aggressive account. I am willing to take some risk to hopefully gain in the long run. I would appreciate any advice you could give to me.
By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance
November 15, 2004
I am thinking about investing $5,000 to $10,000 dollars into some kind of aggressive account. At this point in my life I am willing to take some risk to hopefully gain in the long run. I do understand that there is a chance of losing it. I would appreciate any advice you could give to me.
Kiplinger's advice has always been to diversify -- or spread your money around -- as much as possible, and keep investing a fixed amount at regular intervals.
These strategies will help you rack up the biggest returns by taking advantage of every situation the market can throw at you.
When you say you want to put your money into "an aggressive account," I assume you are talking about an "aggressive growth" mutual fund. That's fine place to start, but don't stop there.
Mutual funds categorize themselves by several objectives, and while these labels provide some indication of the amount of risk mutual fund managers are going to take with your money, they do little to explain how the managers are going to do it. For that you need to look at a fund's style.
For example, an aggressive-growth fund, could invest in large growing companies (often called large-cap growth funds) or small up-and-coming companies (small-cap growth); or maybe mid-size companies on the mend (mid-cap value).
Stocks don't always move in the same direction and different investment styles can also move in and out of favor.
Diversifying your investments in several mutual funds of various styles helps reduce losses, because even if one type of company has a rough year, you'll still have plenty of money invested elsewhere.
Our long-term portfolio, was designed just for people like you, investors who are willing to accept significant market risk and who would not need their money for several years.
You'll need $20,000 to replicate that exact portfolio in the proportions we've mentioned (or $10,000 in an IRA, because of lower investing minimums). You can start with less money by investing in two or three of the funds listed -- such as Oakmark, then Masters', then Legg Mason -- then gradually adding the others as you get more money. Your $5,000 or $10,000 initial investment should get you well on your way, which brings me to my next point: Keep saving no matter what.
That's right, even if the market goes down, keep adding to your portfolio. Why? Because no one, not even the brightest Wall Street star, can time the market. If you stop investing or sell too early, you could miss bigger gains, or the next big rebound.
But if you continue to invest as as the market turns south, you are buying shares at discount prices. When the market turns around, and it eventually will (you're in it for the long haul, remember?), you have more shares purchased for less money to spring back. This very simple investing strategy is called dollar-cost averaging. Learn more about Growing a Fund Portfolio.