Based on the approach of market participants toward risk tolerance, investing style can be either: Conservative or Aggressive.
Your investment strategy depends on certain parameters such as risk and return. It refers to your approach to stock investing. It’s a method or philosophy followed by investors in selecting stocks, bonds and other financial assets for their portfolio.
In this article, we will tell you what is conservative and aggressive investment strategy.
Conservative investment strategy
Conservative investment strategy means you prefer to invest in safe and secure places. Bank fixed deposit, risk-free government securities, blue-chip stocks and large-cap stocks from defensive sectors are considered as safe and secure places.
The main objective of a conservative investor is the preservation of capital over market returns.
To protect their capital for a satisfactory return from stocks, market participants search for safe and secure investment opportunities. Secure companies can be found based on following criteria;
- Proven track record of growth in sales and earnings.
- Market value, which justify the size of the company
- Industry leadership, to take advantage of economic opportunity
- Financial health, which defines the companies staying power in case of any economic downturn.
- Impact of government decisions and economic conditions.
One of the major drawbacks of conservative investing is that it may not give you significant returns in terms of capital appreciation over time compared to more aggressive strategy.
Aggressive investment strategy
Aggressive investment strategy matches young investors who are interested in taking higher degrees of risk to maximize return. It does not mean that they speculate.
They invest to maximize capital appreciation or increase the portfolio’s value over the long term, rather than regular income or safety.
As aggressive investors are not bothered about the company’s dividend, they prefer to invest more in growth stocks for their capital appreciation.
These investors base their investing decision on companies with following qualities;
- Market opportunity
- Quality product or services
- Greater growth potential
- Innovation
As these investors are only concerned about growth, they don’t prefer large cap stocks. They go for small capitalization stocks or mid-cap stocks.
