People create investment portfolios to increase their wealth over time, but how they do this depends on many varying factors such as strategy, risk tolerance, among other things.
Before investing, you need to set your goal, time horizon, risk appetite, and initial capital as these determine the strategy you will apply in creating your portfolio.
One of the popular types of the investment portfolios is the growth portfolio. In this article, you will learn what a growth portfolio is, how it works, and how it compares to the High-Risk Strategy (PECH).
What is a Growth Portfolio?
A growth portfolio is designed to deliver high returns systematically. Investments in this type of portfolio are assets that demonstrate high growth potential but also carry greater risk, including newer companies and those in “hot” or trending sectors of the economy.
Growth assets generate a return from value appreciation or from the distribution of profits/dividends. Examples of growth assets are equities (i.e., stocks), real estate, and cryptocurrency.
Since growth assets are considered aggressive, they are riskier and more volatile than other assets. Unlike income assets such as bonds, growth assets cannot guarantee you will get your principal and interest. If the economy turns downward or investor sentiment dies down, their value goes down fast.
However, precisely because of this higher risk that you can expect higher returns on growth assets than on conservative investments.
How does it work?
Considering the high-risk, high-reward dynamic of growth portfolios, you need to have a high tolerance for risk and a time horizon of five to ten years. The longer time horizon is important to offset the volatility that these growth assets experience in the short term. This makes it attractive for investors in their 20s and 30s who are not retiring anytime soon.
Expected return
The returns on growth portfolios vary, but, looking at growth funds, funds that specifically invest in growth assets, it’s safe to say that it can range from 10% to 20%. An example is the growth ETF fund iShares Russell 1000 Growth ETF (IWF) which has a 10-year annualized return of 14.83%
What’s an aggressive growth portfolio (and how does it differ from a conservative growth portfolio)?
An aggressive growth portfolio aims to maximize returns by taking a higher level of risk. This type of investment strategy is an intensified version of the growth strategy. Unlike conservative growth portfolios that at least offset some risks by diversifying on other less volatile assets, an aggressive growth portfolio intentionally lessens diversity on its allocation.
It heavily invests on greatly volatile assets to create more gains. For example, a portfolio which has an asset allocation of 80% equities and 20% crypto would be considered aggressive, compared to a portfolio of 70% equities, 20% real estate, and 10% fixed-income.
High Risk Strategy (PECH) vs. Typical Growth-Oriented Portfolio
PECH and a typical growth-oriented portfolio have common and varying characteristics. They both aim to maximize returns by allocating on growth assets. However, they differ in how they approach volatility.
When a growth-oriented portfolio typically holds on to its allocation for a longer time to avoid volatility, PECH thrives exactly in this kind of environment. With its use of 2x leverage, it can produce sharper market fluctuations, thus higher returns, but also higher risk of losses.
Nonetheless, PECH neutralizes this risk by using crypto perpetual futures for its leverage – allowing the investor to lose no more than their initial capital if ever losses occur. This is significantly different from leveraged traditional assets wherein an investor can not only lose their initial capital, but also must pay the accrued interest.
But more than that, PECH’s AI-led trading strategy makes it simpler for investors to get exposed to high-growth cryptocurrencies, unlike traditional growth portfolios that heavily rely on more complicated processes of manual asset picking and/or growth funds.
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Whatever's your portfolio strategy, you must stick with it.
As the great founder of growth investing, Thomas Rowe Price Jr., once said, “change is the investor's only certainty.” The markets will change, and investor sentiments will shift. Amidst all these, pick a strategy that works for you and commit to it.
