Aggressive Growth Funds

If a growth fund seeks companies that can grow at 60 miles per hour, an aggressive growth fund is like a race-car driver. The manager of such a fund buys stocks she thinks have the most exciting growth possibilities, including small cap stocks, stocks of companies that are developing new technologies, and stocks in firms whose business is likely to double or triple within a few years.
In pursuit of higher returns, aggressive growth funds take greater risks and are subject to greater volatility. If you invest in an aggressive growth fund, your money may shrink by 50% one year and grow by 100% the next. Don’t pick this kind of fund unless you can handle a financial roller-coaster ride. An aggressive growth fund also may use financial techniques that involve more risk. One example is the use of options and other so-called derivative instruments. When an investor buys an option, he buys the right to buy or sell a stock (or other security) at a prespecified price at some time in the future. In effect, an option is a bet that the price of a security will move in a specific direction, up or down. If the investor bets right, the profits can be large; if he bets wrong, the losses can be just as large.
If you suspect that a mutual fund is being managed in a highrisk fashion, study the prospectus carefully. If the document indicates that the fund manager is investing in options, futures, or other derivative instruments, make sure you understand the degree and nature of the financial risk involved. And don’t invest more money than you can afford to lose. Gambling a little can be fun — but not with the money you’re relying on for retirement or your kids’ education.