Aggressive growth stock stocks can help create wealth and hedge against inflation, however this asset class can be volatile. The key to success is to stay invested over time as time smooths out volatility while positive returns compound.
Golden Eagle Strategies has constructed investment style indices which date back to 1958*. As seen in the table below, a $100 investment in aggressive growth funds would have grown to approximately $170,100 before taxes through 2021 versus approximately $55,700 for the S&P 500 through 2021. This same trend holds true even after the worst bear market for aggressive growth stocks ever in 2022. A $100 investment in aggressive growth funds would have almost doubled that of the S&P, growing to approximately $80,240 versus $45,639. Of all investment styles, the aggressive growth style has proven to be the most rewarding over the long term.
A look back at the worst period of inflation in U.S. history during the 1970s explains why aggressive growth investing is a great hedge against inflation. Inflation spiked from 3.3% in 1972 rising to 12.5% in 1980. Over that period, the Consumer Price Index (CPI) advanced by 95%.2 The aggressive growth category was the only style, among growth and value, to stay ahead of inflation with a return of 130%. By comparison, S&P 500 investors suffered during this period in real terms as the return for this index captured only two-thirds of the inflation rate.*
The U.S. has again entered a period of high inflation, which many projects will persist for years to come. It is important to note that the current inflationary period is different in many ways than that of the 1972-1980 era where interest rates rose along with the inflation rate during this period. The 10-year Treasury Bond peaked at 15.1% whereas the 30-year T-Bond reached a peak at 17.7%.
Today the current yield on the 10-year T-Bond is an anemic 2.7% with inflation running around 14%, according to findings by Golden Eagle Strategies. Bond investors are being eaten alive and have lost 12% of purchasing power in the past year when a more accurate rate of inflation is considered (a 14% inflation rate combined with a 1.7% yield on the 10-year T-Bond equates to a real loss in the capital of 12.3% per year before taxes).
Many investors shy away from high-growth stocks because they are unaware of their superior historic returns and are afraid of volatility. Those who understand volatility see it as a market opportunity. The key is to stay invested in aggressive growth over the long term.
Investors often associate the reduction of risk with diversification, but the risk can also be reduced by investing over the long term. Over any 10-year period since the S&P was introduced in 1926, the market has provided a positive return 94% of the time, and over 11 years the return has been positive 100% of the time.
Volatility becomes irrelevant over time in building wealth. The most prudent entry approach is to invest consistently, taking a long-term horizon because time smooths out volatility. Another is to buy an asset after a decrease in value. For example, aggressive growth has recently gone through the worst downturn since 2008. Pursuing both is optimal.
It is extremely challenging to predict short-term swings in the market and even harder to do so consistently. The key is to stay invested. Market lows often result in emotional decision-making. However, some of the most significant one-day upswings in the market occur during these volatile periods.
* Investment Style Index (1958-20210) consists of Weisenberger Mutual Fund Report, Frank Russell Company, and Golden Eagle Strategies research.
Aggressive growth stock stocks can help create wealth and hedge against inflation, however this asset class can be volatile. The key to success is to stay invested over time as time smooths out volatility while positive returns compound.
Golden Eagle Strategies has constructed investment style indices which date back to 1958*. As seen in the table below, a $100 investment in aggressive growth funds would have grown to approximately $170,100 before taxes through 2021 versus approximately $55,700 for the S&P 500 through 2021. This same trend holds true even after the worst bear market for aggressive growth stocks ever in 2022. A $100 investment in aggressive growth funds would have almost doubled that of the S&P, growing to approximately $80,240 versus $45,639. Of all investment styles, the aggressive growth style has proven to be the most rewarding over the long term.
A look back at the worst period of inflation in U.S. history during the 1970s explains why aggressive growth investing is a great hedge against inflation. Inflation spiked from 3.3% in 1972 rising to 12.5% in 1980. Over that period, the Consumer Price Index (CPI) advanced by 95%.2 The aggressive growth category was the only style, among growth and value, to stay ahead of inflation with a return of 130%. By comparison, S&P 500 investors suffered during this period in real terms as the return for this index captured only two-thirds of the inflation rate.*
The U.S. has again entered a period of high inflation, which many projects will persist for years to come. It is important to note that the current inflationary period is different in many ways than that of the 1972-1980 era where interest rates rose along with the inflation rate during this period. The 10-year Treasury Bond peaked at 15.1% whereas the 30-year T-Bond reached a peak at 17.7%.
Today the current yield on the 10-year T-Bond is an anemic 2.7% with inflation running around 14%, according to findings by Golden Eagle Strategies. Bond investors are being eaten alive and have lost 12% of purchasing power in the past year when a more accurate rate of inflation is considered (a 14% inflation rate combined with a 1.7% yield on the 10-year T-Bond equates to a real loss in the capital of 12.3% per year before taxes).
Many investors shy away from high-growth stocks because they are unaware of their superior historic returns and are afraid of volatility. Those who understand volatility see it as a market opportunity. The key is to stay invested in aggressive growth over the long term.
Investors often associate the reduction of risk with diversification, but the risk can also be reduced by investing over the long term. Over any 10-year period since the S&P was introduced in 1926, the market has provided a positive return 94% of the time, and over 11 years the return has been positive 100% of the time.
Volatility becomes irrelevant over time in building wealth. The most prudent entry approach is to invest consistently, taking a long-term horizon because time smooths out volatility. Another is to buy an asset after a decrease in value. For example, aggressive growth has recently gone through the worst downturn since 2008. Pursuing both is optimal.
It is extremely challenging to predict short-term swings in the market and even harder to do so consistently. The key is to stay invested. Market lows often result in emotional decision-making. However, some of the most significant one-day upswings in the market occur during these volatile periods.
* Investment Style Index (1958-20210) consists of Weisenberger Mutual Fund Report, Frank Russell Company, and Golden Eagle Strategies research.
Manager of the Golden Eagle Growth Strategy
