Sometimes -- especially when a bear market awakens from its hibernation -- investors begin to feel the urge to take a flier on a higher-risk mutual fund.
Which can be OK. Having a very small portion of your holdings in speculative choices can be acceptable so long as it doesn't involve little Johnny's tuition, next year's retirement expenses, or the bulk of your family nest egg.
Just enter with eyes wide open: Acknowledge inherent risks, study the fund's strategy, steel yourself for volatility and be willing to lose everything you put in.
Investing intelligently in higher-risk choices in 2010 requires homework.
"A mutual fund's name or description may include the word 'aggressive' or 'concentrated' but rarely will it say it is a 'high-risk' mutual fund," noted
Risk to some investors means volatility and how much a fund will go up and down in value, yet for others it means the likelihood of losing one's money, he said. Be clear on your own risk definition.
"Rather than look at the label, look at the fund's strategy and how concentrated its portfolio is," advised
Simply saying that you want to get more aggressive with your investments is a mistake, Benz warned, because the starting point must be the building of an intelligent asset allocation framework before even thinking about diversifying your risks.
Growth funds willing to pay high prices for fast-growing stocks are commonly considered high-risk. However, aggressive value funds that move quickly to scoop up price-challenged fallen stocks can also have their share of fluctuations.
Its circuitous path to those results included a 51 percent nosedive in 2008 and a 91 percent gain in 2009. Many investors would be reaching for the Dramamine.
"I'm not really a 'shoot the moon' kind of a guy but rather someone who buys things when they are very cheap -- well under book value," said the fund's portfolio manager,
While many managers shudder at market sell-offs, Barbee becomes energized about battered stocks to snap up as bargains. Many names in his portfolio would draw blank stares from most investors.
Shares of Horsehead are up 5 percent this year following a gain of 171 percent last year and a 72 percent drop in 2008. It is obviously not for jumpy investors.
Names in the Aegis Value portfolio that are more familiar to average investors include
Another volatile fund Tjornehoj considers noteworthy is
One-third of its portfolio is in Russian stocks, with energy, telecommunications and financials its key industries. Some better-known stocks include
It is also one of the few funds that includes stocks from Central and
"To cut through the clutter, a smart thing to do is look at the 2008 and 2009 performance of a fund," said
A caveat, however, is that every bear market is somewhat different and the performance patterns begun in 2008 won't exactly repeat themselves again, Benz warned. Risk can always find countless new ways to take a bite out your portfolio.
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