Inefficient Portfolio

AAA

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.

INVESTOPEDIA EXPLAINS '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).

RELATED TERMS
  1. Portfolio Plan

    An investment strategy applied to a personal or corporate portfolio ...
  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. Portfolio Management

    The art and science of making decisions about investment mix ...
  6. Risk

    The chance that an investment's actual return will be different ...
Related Articles
  1. Investing Basics

    5 Tips For Diversifying Your Portfolio

    A diversified portfolio will protect you in a tough market. Get some solid tips here!
  2. Investing Basics

    Introduction To Investment Diversification

    Reducing risk and increasing returns in your portfolio is all about finding the right balance.
  3. Bonds & Fixed Income

    Find The Highest Returns With The Sharpe Ratio

    Learn how to follow the efficient frontier to increase your chances of successful investing.
  4. Mutual Funds & ETFs

    Understanding Volatility Measurements

    How do you choose a fund with an optimal risk-reward combination? We teach you about standard deviation, beta and more!
  5. Insurance

    The Dangers Of Over-Diversifying Your Portfolio

    If you diversify too much, you might not lose much, but you won't gain much either.
  6. Personal Finance

    How Risky Is Your Portfolio?

    Find out how you could be subject to larger losses than you think.
  7. Investing Basics

    When is it beneficial for underwriters to sell stock below the minimum rate?

    Learn when selling stock below the minimum rate can be beneficial. Find out how the 1987 market crash affected an offering of British Petroleum shares.
  8. Investing Basics

    How do REIT managers use capitalization rate to configure their portfolios?

    Learn how REIT managers use capitalization rates to help assess risk and identify properties as potential purchase and sale candidates.
  9. Fundamental Analysis

    What are the risks associated with investing in the railroads sector?

    Learn about risks relating to investing in the railroad sector. Explore how the price of fuel, cost of labor and access to capital affects railroad companies.
  10. Mutual Funds & ETFs

    What are the risks involved in keeping my money in a money market account?

    Setting aside funds in a money market account can be a safe investment strategy, but investors should be aware of the risks inherent to money market options.

You May Also Like

Hot Definitions
  1. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  2. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  3. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  4. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  5. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  6. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
Trading Center