Inefficient Portfolio


DEFINITION of 'Inefficient Portfolio'

An inefficient portfolio is an investment portfolio that delivers an expected return that is too low for the amount of risk taken on, or conversely, an investment portfolio that requires too much risk for a given expected return. An inefficient portfolio has a poor risk-to-reward ratio.

BREAKING DOWN 'Inefficient Portfolio'

An inefficient portfolio exposes an investor to a higher degree of risk, either by expected returns that are too low for the risk endured, or by risking too much for size of the expected return. If expected returns are not met for a particular risk level, or the risk required to attain a specific level of return is too high, the portfolio is said to be inefficient. For example, a portfolio of junk bonds expected to only return the risk-free rate of return would be said to be inefficient (this is an extreme example).

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  2. Portfolio Weight

    The percentage composition of a particular holding in a portfolio. ...
  3. Portfolio Return

    The monetary return experienced by a holder of a portfolio. Portfolio ...
  4. Portfolio

    A grouping of financial assets such as stocks, bonds and cash ...
  5. Risk

    The chance that an investment's actual return will be different ...
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