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A Basic Guide to Aggressive Investment Strategies

A Basic Guide to Aggressive Investment Strategies

From Options Trading to Cryptocurrency: Basic Guide to Aggressive Investment Strategies   

Aggressive investment strategies are a high-risk, high-reward approach to investing. The primary aim is an above-average return on investment. From options trading to cryptocurrency, aggressive investment strategies can have a place in an investor's portfolio if they understand the advantages and disadvantages of aggressive stocks and how to manage risks accordingly. 

Risky Investments to Consider for DIY Investors

Taking little or no risk can backfire for investors in the long run and not deliver the expected returns. Taking small risks can yield high gains, and for some DIY investors, it can protect their portfolios against inflation and market volatility. When considering aggressive investment strategies, there are some options to consider. 

Gold Funds

Gold is an asset that has done well over time, and like any other asset, it can rise and fall in value. It can be purchased as a physical asset, or investments can be made in gold stocks or ETFs. Gold is often held to hedge inflation, as it often goes up when the dollar goes down. Gold can be a worthwhile addition to your portfolio but may not suit all investors. 

Pros

  • Gold can be one way to diversify your assets and often moves in the opposite direction of the stock market. If stocks drop, gold often heads higher. 
  • Gold is valuable, and many investors use it to hedge against inflation, stock market events, and political instability. 
  • The world has a finite amount of gold, and it is recognized as a haven investment. 

Cons

  • The price of gold rises and falls like any other asset, and price movements are not always based on value. The strength of the dollar and other factors influence what gold is worth. 
  • If you purchase gold as a physical asset, it will need to be stored safely and securely, which can be expensive. 
  • Gold offers no yield while you own it. The only way to generate a return is to sell it to another person.

Aggressive (Small-and Micro-Cap) Stocks

Small-cap and micro-cap stocks are companies with a market capitalization between $50 and $500 million. They have historically offered higher returns than larger company stocks. Platforms like SmallCapPower can provide information for investors looking to add small and micro-cap stocks to their portfolios. 

Pros

  • The entry price is low, creating more growth opportunities than large caps. A micro-cap stock can produce huge returns for investors if a larger company acquires a small company. 
  • There is less competition in the market, allowing investors to find hidden gems. 
  • Small-cap stocks have the potential for high capital appreciation. If the business becomes successful, the prices can compound to more than two times the original price. 

Cons 

  • Smaller companies have a greater risk of failure, and investors can lose their money if the business fails. 
  • There is more market volatility with micro-caps, and investors should be wary of the fraudulent pump and dump schemes. It pays to do research before investing. 
  • Dividends are small compared with larger caps, as companies need to reinvest funds to support business growth. 

Options Trading

Options trading is an aggressive investment strategy with huge risks and the potential for fast returns. The buyer is not required to purchase or sell the asset at the contracted price but pays for the contract itself or the option. Options trading can be complicated, and it is best suited to investors with some trading experience. 

Pros

  • A lower financial commitment is required if you hope to take advantage of stock price movement.
  • Options trading offers flexibility depending on the type of option and position. Investors can use options to hedge against their current investments. 

Cons

  • Options trading is time-sensitive. There is an expiration deadline, which means the investor needs to be right to make profits.
  • Many options expire, and when this occurs, the contract becomes worthless. 

Emerging Markets

Emerging Market ETFs are emerging market stocks. Most emerging markets are in the early stages of development, and investors accept the risk of seeing growth. Many investors diversify their portfolios by putting a portion of their assets into emerging market ETFs. 
Pros

  • Emerging Market ETFs are cost-effective, and there is the potential for high growth and high returns compared to other parts of a portfolio. 
  • ETFs, give investors diversification that they would not see in traditional markets. 
  • From a global perspective, investing in Emerging Market ETFs can improve the economic standard of living and increase employment opportunities in developing areas. 

Cons

  • Volatility is something to consider when investing in Emerging Markets ETFs. Risks are higher with emerging markets because they are untested. 
  • Emerging markets are vulnerable to geopolitical and governance issues. Investing in growing economies can be risky when many external factors come into play.

Cryptocurrency

Cryptocurrencies are digital assets using secure computer networking. They can be used for purchasing and can store and grow value. Owners hold cryptocurrency in a digital wallet or buy and sell via an online exchange. In Canada, cryptocurrency exchanges like Bitbuy and Coinbase are popular with investors seeking exposure to the market. 

Pros

  • The advantage of cryptocurrency is that it is easy to purchase and trade. An account can be set up in less than an hour. 
  • Price fluctuations create huge profits for cryptocurrency holders. The price of a cryptocurrency can change by over 20% in days. 
  • Cryptocurrencies generally have a finite supply, making them attractive to investors who want to hedge against inflation. 

Cons

  • Cryptocurrencies can be volatile, which means investors can make a lot of money and lose a lot of money. 
  • The laws around cryptocurrencies are changing. Governments are taking a greater interest in tightening regulations on cryptocurrency markets. 
  • Security can be a concern for investors. It is a space that can have issues with infiltration and hacking.
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