Aggressive funds are money losers
Avoiding aggressive investments may seem like the best way to minimize losses in a market downturn and keep your money safe, but it has hidden downsides.
"There are lots of risks out there in the marketplace, for instance inflation risk, tax risk to your purchasing power," says Masiello.
Even though you may keep your principal whole, if you earn less than the inflation rate, the purchasing power of your money will be eroded.
"After tax if you earn 1.5 percent and you are in the 30 percent tax bracket, you really earned 1 percent. And if inflation is 3 percent, you're really at minus 2 percent. True, you didn't lose money. But you didn't earn money and your purchasing power just got cut."
Many aggressive investments will preserve the purchasing power of your money and add to your principal over time. Combined with a smart investing strategy and diverse investments, the risk will be minimized and, it is hoped, returns boosted.