Cutoff Point

AAA

DEFINITION of 'Cutoff Point'

The point at which an investor decides whether or not a particular security is worth purchasing. The cutoff point is very subjective and will be based on the personal characteristics of the individual investor. Some examples of personal characteristics that may determine the cutoff point include the investor's required rate of return and his or her risk aversion level.

INVESTOPEDIA EXPLAINS 'Cutoff Point'

Because cutoff points are largely subjective, they will vary widely among investors. For example, if an investor has a lower required rate of return, he or she will likely pay more for the same security than a person with a higher required rate of return. This translates into a higher cutoff point for the first investor.

A cutoff point may also be considered a good "rule of thumb" when considering particular securities, as it may help the investor make more consistent investment decisions.

RELATED TERMS
  1. Security

    A financial instrument that represents: an ownership position ...
  2. Risk Tolerance

    The degree of variability in investment returns that an individual ...
  3. Required Rate Of Return - RRR

    The minimum annual percentage earned by an investment that will ...
  4. Risk Averse

    A description of an investor who, when faced with two investments ...
  5. Rate Of Return

    The gain or loss on an investment over a specified period, expressed ...
  6. Dividend

    A distribution of a portion of a company's earnings, decided ...
Related Articles
  1. Active Trading

    The Elder-Ray Indicator: Seeing Into The Market

    Elder-ray helps determine the strength of competing groups of bulls and bears so you know when to buy and when to short.
  2. Mutual Funds & ETFs

    When To Sell A Mutual Fund

    Unhappy with your mutual fund's returns and thinking of investing elsewhere? Read this article first.
  3. Entrepreneurship

    Five Investing Pitfalls To Avoid, According to Investor's Business Daily

    Common sense or common folly? Discover some approaches to circumventing typical stumbling blocks on the road to profitable investing.
  4. Options & Futures

    Investing 101: A Tutorial For Beginner Investors

    Do want to invest, but don't know how to begin? We'll show you the building blocks you need to get started.
  5. Investing Basics

    Explaining Market Value of Equity

    Market value of equity is the total value of all the outstanding stock as measured in the stock market at a particular time.
  6. Investing Basics

    What is Spread?

    Spread has several slightly different meanings depending on the context. Generally, spread refers to the difference between two comparable measures.
  7. Economics

    What is the Breakeven Point?

    In general, when gains or revenue earned equals the money spent to earn the gains or revenue, you’ve hit the breakeven point.
  8. Stock Analysis

    What is the Price-to-Sales Ratio?

    The price-to-sales ratio is an indicator of the value placed on each dollar of a company’s sales or revenues.
  9. Investing Basics

    What is Treasury Stock?

    Treasury stock is a company’s own stock that it holds in its treasury for later use.
  10. Investing Basics

    What is a Mid-Cap?

    Mid-cap companies are those with a market capitalization between two and $10 billion.

You May Also Like

Hot Definitions
  1. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  2. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  3. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  4. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  5. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  6. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
Trading Center