Building an aggressive portfolio in your 20s can be a powerful strategy to increase your wealth over time. At this age, you’re in a great position to take on more risk, as you have plenty of time to recover from potential downturns. An aggressive portfolio, usually weighted heavily toward stocks and other risky assets that offer the potential for higher returns, which can significantly boost your financial growth.
When you’re young, this approach can help you pursue your financial goals more effectively. Consider incorporating a variety of asset classes to spread risk and tap into different market potentials. Embracing this strategy helps you take advantage of a longer time horizon, enabling you to maximize the benefits of compounding returns.
Why Build an Aggressive Portfolio
Investing in your 20s can set a strong foundation for your financial future as you have so much time on your side. You have the time to take insane risks, and you can bounce back from it if it does not turn out the way you think. This goes for more than just investing money, but time, and energy as well. This does not mean you YOLO your entire net worth on microcap cryptocurrencies but take a real swing at something that can be truly rewarding or meaningful if you put in the effort.
Reducing Downside Risk in an Aggressive Portfolio
I believe in taking a look at your entire portfolio, all assets and all liabilities, when figuring out your allocation. When taking an aggressive position in your finances, ensure that you are not blind siding yourself to unnecessary risk, your first step should be to establish your emergency fund so that you can build your portfolio with your downsides protected from emergency capital needs.
Once your emergency fund is covered, you can go all in on investing. I would recommend utilizing tax advantaged accounts unless you have reached your contribution limits or seek greater liquidity. If that is the case, then investing through a standard brokerage account is the way to go.
Where to Place Risk in Your Aggressive Portfolio
Investing in the S&P 500 or the broader U.S. market before diving into individual stocks is a smart strategy for building a strong foundation for your portfolio. These investments provide instant diversification, giving you exposure to hundreds or even thousands of companies across various sectors, which helps mitigate the risk of any single stock underperforming. Additionally, the S&P 500 historically delivers consistent, long-term growth, making it a reliable choice for wealth accumulation.
By investing in an index fund or ETF tied to the broader market, you can benefit from market-wide gains without the need for extensive research or active stock picking. This approach allows you to grow your portfolio steadily and gain confidence in your investing strategy before venturing into the complexities of selecting individual stocks.
However, that is not to say you should not make concentrated investments into individual stocks. If you are investing in individual stocks with your downside risks (in your entire portfolio) covered, and you are well-versed in your investment thesis, I would not disagree with making concentrated investments into individual stocks when investing for aggressive growth.
Developing an Investment Strategy for Your Aggressive Portfolio
Creating an aggressive investment strategy in your 20s can maximize growth potential by prioritizing stocks and other high-risk assets. Understanding how to assess your risk tolerance, allocate both your time and capital, and how to leverage tax-advantaged accounts will be incredible in your developing your aggressive portfolio
Assessing Risk and Reward
When you design an aggressive investment strategy, understanding the balance between risk and reward is essential. Investing in stocks and other volatile assets can offer high returns, but they come with increased risk.
Think about what level of risk you are comfortable with as you build your portfolio. Your capacity to handle market losses influences your choices. Analyzing past stock market returns can give insights into potential gains and losses. It’s important to remember that aggressive portfolios often see larger fluctuations in value. Being prepared for these ups and downs can help you stay committed to your investment approach over the long term.
Assets with the Highest Risk and Highest Returns
The Poor Man’s Alternative Assets, such as starting your own business, represent a higher-risk, higher-reward pathway compared to traditional investments like stocks. While stocks offer liquidity and clear market valuation, businesses are much harder to value accurately, particularly when planning an exit. Additionally, the risk of failure is higher due to market competition, operational challenges, and economic uncertainty.
However, owning a business provides an opportunity for returns far greater than those typically achieved in the stock market, especially if the business scales successfully or generates consistent cash flow. For those willing to embrace the uncertainty and put in the effort, building a business can be a transformative wealth-building strategy.
If you are willing to put in the work, work a standard 9 to 5, and then work 5 to 9 building your own equity, you will go incredibly far financially. Even if you do not want to start your own business, spending your evenings growing your skills can help you achieve a higher earning job for a 9 to 5.
Check out our recent post on substantially growing your income for more information.
Leveraging Tax-Advantaged Accounts
Maximizing the benefits of tax-advantaged accounts is a smart way to boost your investment outcomes. Accounts such as a Roth IRA or a 401(k) allow your investments to grow tax-free or tax-deferred, respectively. Contributing to these accounts can help you save more, leading to larger investment growth over time.
Make the most of any employer match offered in a 401(k) plan, as it’s akin to free money. Additionally, tax advantages can make your aggressive strategy more profitable by reducing the taxes you owe. Ensuring you know the contribution limits and potential tax benefits can enhance your overall returns.
Executing on Building an Aggressive Portfolio
After you have figured out what you want and how you are going to do it, execute on it. Start today, not tomorrow, be aggressive in investing so that your portfolio can grow aggressively on its own. Charlie Munger has been famously quoted for saying you can slow down after your first $100K, but if you are building for aggressive growth in your 20s, I believe you can slow down once your portfolio grows at a rate greater than you can build it. Start executing on your aggressive portfolio today.