One of the first questions a financial advisor in Orleans, MA will ask is how much risk are you willing to assume when making financial investments. The investment process begins with an assessment of the goals and preferences of the investor. The ideal investment portfolio will then balance risk with goals.

Assessing the amount of risk an investor will assume is important because risk will drive the specific investments made. In general, the higher the risk, the higher the return on investment is expected to be. However, the higher the risk, the greater chance you have of losing the investment. In other words, there is a cost associated with higher returns and that cost is the risk that actual returns will vary from the expected returns.

Acceptable Risk Level

When you work with a financial advisor in Orleans, MA, one of the goals is to develop an investment portfolio with an acceptable risk level. The acceptable risk level is based on a number of factors including your age, views of the markets, need for cash and tax bracket. If you must withdraw cash regularly from the portfolio, you will probably want a low risk portfolio with a reliable return. If you don't need the cash and can let assets accumulate uninterrupted, you'll have a higher tolerance for risk.

The portfolio manager or financial advisor in Orleans, MA will look at your total financial status to determine how to best allocate assets to achieve the risk level. The risk assessment will consider your personal goals, as mentioned, but will also consider factors like inflation, interest rates, expected asset growth rates and the individual asset risk.

Risk management requires keeping the right balance of investments in cash and cash equivalents, stocks and bonds and even real estate. A low risk investment portfolio would include a mixture of pension plans, IRAs and government securities. For those people saving for retirement, the low risk portfolio is ideal. Though you might be able to experience faster asset growth through investments in stocks and bonds, there is also a higher risk of loss. Losing retirement savings can set an investor back financially for years.

Life Risks

There are some risks that can affect retirement income that are due to time or longevity. These are the risks over which you have little control but taking them into consideration can influence your choice of investments. For example, you may decide to buy extra life insurance or make additional investments that focus on preserved principle. The life risks include:

• Living longer than expected and outliving retirement savings
• Inflation reduces the buying power of retirement savings
• High health care expenses in the senior years
• Loss of a spouse and thus the spouse's retirement income

Though you can't anticipate everything that can happen in life, assessing the financial and non-financial risks associated with the investment portfolio is important. The financial planner in Orleans, MA will work with you to create a retirement plan that includes a tolerance for risk. How much tolerance depends on your needs, preferences and goals.