How To Build An Aggressive Investment Portfolio
Posted on January 2, 2008 in the Investing, Mutual Funds category
.This is part of our continuing series of how to develop an investment portfolio. Previously we have covered Building a mutual fund portfolio and How To Build A Conservative Investment Portfolio. Today we tackle how to build an aggressive mutual fund portfolio.
Typical Investor: This portfolio is designed for growth-oriented mutual fund investors who have long-term investment horizon (more than five years) and who are willing to tolerate market fluctuations while seeking the opportunity for capital growth.
Volatility: High
Return Potential: High
Asset Allocation:
- 75% Stocks
- 15% Fixed Income
- 10% Cash
Bonds
The bonds fund portion of the portfolio consists of High-Yield bond funds. These funds should help increase the portfolio’s yield and overall return. The two High-Yield funds we picked are the Fidelity Capital & Income Fund (FAGIX) and the Principal Inv High Yield II Inst Fund (PHYTX). Both of these funds are rated 5 stars from Morningstar and all meet my “stringent” investing criteria.
The Fidelity fund typically invests in equity and debt securities, including defaulted securities, with an emphasis on lower-quality debt securities. It may invest in companies in troubled or uncertain financial condition and in domestic and foreign issuers. Thus fund is in the top 10% of all High Yield funds for the last 1 and 3 year periods.
The Principal fund invests primarily in high-yield, high-risk, below-investment grade fixed-income securities (sometimes called “junk bonds”), which may include foreign investments. It invests normally at least 80% of net assets (plus any borrowings for investment purposes) in a diversified portfolio of fixed-income securities (including convertible securities and preferred stocks) rated lower than BBB by S&P or Fitch or rated lower than Baa by Moody’s or of equivalent quality as determined by management. Over the last 3 years this is the best performing High Yield Bond Fund.
Stocks
When designing a stock portfolio one thing to keep in mind is that the stock funds and individual stocks should complement each other to give you the growth that you are looking for, while aiming to reduce volatility in your portfolio if possible. When allocating your money amongst the various funds listed below I would not put more than 25% into any one type of fund.
The cornerstone of any mutual fund stock portfolio is the Vanguard S&P 500 Index fund. Yes I know it is boring but over last three years this fund has managed to beat 95% of all equity funds. Thus if you invest in this fund, you know you are virtually guaranteed to be in the top 10% or so of all equity funds.
Some other U.S, domestic growth funds that I like are Rydex OTC (RYVYX) and Janus 20 (JAVLX).
The Rydex OTC is a very aggressive fund who’s objective is yo provide investment results that will match 200% of the performance of the Nasdaq 100 index. The fund invests all assets in the Dynamic OTC master fund, which invests in leveraged instruments, such as equity index swaps, futures contracts and options on securities, futures contracts, and stock indices. The NSADAQ 100 index is heavily weighted with technology stocks and this sector has been pretty good over the past three years enabling Rydex to return a three year average annual return of 24.63%. With the growth of the Internet and the worldwide demand for mobile technology this fund could be a top performer over the next 5 years.
The Janus 20 fund is a large growth fund whose objective is to seek long-term growth of capital. The fund primarily invests in equity securities with growth potential. It primarily invests in a core group of 20-30 common stocks selected for their growth potential. The fund is nondiversified. Janus 20 has a five year average return of 20.99% compared to 9.77% for the typical large growth fund.
To round out the portfolio and compliment the U.S. funds above I would add two international funds. The first is the diversified international stock fund like the Acadian Emerging Markets funds (AEMGX). Acadian invests primarily at least 80% of net assets in equity securities of issuers that have their principal securities trading market in an emerging country; alone or on a consolidated basis derive 50% or more of annual revenue from goods produced, sales made or services performed in emerging countries; or are organized under the laws of, and have a principal office in, an emerging country.
My second International fund is a a regional one. I believe that China offers tremendous opportunity for investors and one of the best ways to invest in China is through a fund like Nationwide China Opportunities Instl Svc (GOPSX). Nationwide invests at least 80% of its net assets in securities of companies located in China including Hong Kong. The fund will invest primarily in common stocks, initial public offerings (IPOs), as available, and depositary receipts. The fund may also invest in equity-link notes.
The other way to build an aggressive investment portfolio is through the purchase of individual stocks and that is the topic of an upcoming post.
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