On average, mutual funds that carry the greatest risk, like aggressive growth and income funds, have the potential to produce the greatest return on investment, according to Investopedia. An investor in a mutual fund who purchases stock primarily from young start-up companies, for example, assumes a higher level of risk in the hope of benefiting from a higher yield.Continue Reading
A good example of an aggressive fund is a mutual fund that invests primarily in young companies either prior to or during expansive growth and before they reach maturity. It is during this time that the company can experience the greatest return on investment. Once a company reaches maturity, gains or losses are more predictable and tend to be lower in any given year.
While a high-risk mutual fund may see dramatic gains or losses in a particular year, the average over time can be significantly higher than a low-risk mutual fund. This is why young investors are often encouraged to weigh their portfolio heavier with more aggressive funds, according to Investopedia. If they have a bad year, young investors may choose to wait for a good year before selling stock. As investors get older, they have the option of shifting the balance of their portfolio to lower-risk funds.Learn more about Investing