Cutoff Point


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.

BREAKING DOWN '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.

  1. Security

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

    The degree of variability in investment returns that an individual ...
  3. Risk Averse

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

    The gain or loss on an investment over a specified period, expressed ...
  5. Required Rate Of Return - RRR

    The minimum annual percentage earned by an investment that will ...
  6. Market

    A medium allowing buyers and sellers of a specific good or service ...
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