Achieving Your Optimum Portfolio Balance. Well-constructed portfolios have two things in common - diversification and a degree of risk that suits the investor's risk tolerance. Matching the correct investments to an investor's risk tolerance and achieving a degree of diversification that lowers risk while increasing the rate of return are the basic goals of a well-designed portfolio. Apart from these elements a well-designed portfolio will also take into consideration the rate of return that is needed for the investor to reach his/her financial goals.

A basic tenet of investment planning holds that the best way to reduce investment risk is through diversification. Diversification is not a complicated concept. It simply refers to not placing all your eggs in one basket. A typical investment portfolio may include stocks, bonds, mutual funds, and certificates of deposit. How an investor diversifies his portfolio depends on his/her investment objectives.

Investment goals and the corresponding asset allocations can vary greatly depending on a person's age. Someone who is at or near retirement will probably want to be more defensive in his investment strategy. Typically, the investor at or near retirement will be most concerned with preservation of capital and producing income from the money they have accumulated. In an effort to do this with as little risk as possible, he/she will often look to fixed income securities like bonds, certificates of deposit and fixed rate annuities.

However, a younger investor saving for retirement will probably be looking for a higher level of growth with less concern over temporary fluctuations in the value of his/her investments. The younger investor saving for retirement has a much longer time horizon, which allows him/her to be more aggressive in his/her asset allocation. This younger investor will probably weight his/her portfolio more toward stocks, which historically have produced higher rates of return than bonds and other fixed income securities.

Regardless of an investor's age, diversification helps to level out the ups and downs of the market. Historically, different asset classes have performed well at different times, so it pays to spread your money among different asset classes. There is no magic formula based on a person's age that states what his/her asset allocation should be.

The best way to build a well-balanced portfolio that suits your needs is to spend time working with an investment planner you trust. Successfully balancing your goals with a tolerable level of risk is one of the key benefits of working with a professional investment executive. This professional will help to translate your goals and concerns into an appropriate and well-balanced portfolio.

East Boston Investment Services located at EBSB*
Anne Powers, an East Boston Investment Services and Infinex Financial Group Investment Executive, located at East Boston Savings Bank, can help you to design a well-balanced portfolio that suits your needs. For a free consultation call Anne at (978) 977-2294.

* Investment and insurance products and services are offered through Infinex Investments, Inc. Member FINRA / SIPC. In Massachusetts, insurance products are offered through Infinex Insurance Agency of Massachusetts, Inc. Products and services made available through Infinex are not insured by the FDIC or any other agency of the United States and are not deposits or obligations of nor guaranteed or insured by any bank or bank affiliate. These products are subject to investment risk, including the possible loss of value.