The Case For Aggressive Growth: Why It Should Be A Part Of Every Investor’s Portfolio

History demonstrates that equities have provided the highest long-term returns among major asset classes. Equities also surpass other asset classes in their capacity to offset long-term inflation, especially considering that a large portion of equity returns comes from capital appreciation which is not taxable until realized.


More specifically, many studies demonstrate that the aggressive growth equity investment style has proven to be the most rewarding style over the long term.(1) Besides providing a long-term superiority of returns, the aggressive growth style can be viewed as one of the best hedges against inflation – which is an important consideration as we enter into what we believe will be a period of prolonged high inflation. A look back at the worst period of inflation in U.S. history demonstrates that the aggressive growth style was the only equities investment style to stay ahead of inflation. Between 1972 and 1980, the aggressive growth style returned 130% versus an advance of 95% for the Consumer Price Index (CPI).(2) See Golden Eagle Strategies’ paper: “The Aggressive Growth Advantage.”


While the performance data provides a clear and compelling rationale for investing in aggressive growth, investors sometimes opt for less volatile asset classes. While volatility-mitigating investments may be prudent when cash assets are needed, all portfolios would benefit from having a portion of assets invested in aggressive growth. Why? Because this asset class drives wealth creation over time, as volatility smooths out, and also preserves wealth during periods of high inflation.



A Broad View: Asset Class Comparison

Investors have many investment choices beyond traditional asset classes. When evaluating investment options, investors should consider a number of important criteria.

Source: crownlifecanada.com, PrimeAlpha, and Golden Eagle Strategies.


Risk Versus Return

In the chart to the right, we map asset classes based on risk and return similar to the Capital Asset Pricing Model (CAPM) which describes the relationship between systematic risk, expected return for assets, and cost of capital. Investors expect to be compensated for risk, the time value of money, and the cost of money. The higher the risk, the higher the reward.