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 FAQS
  1. No results found.
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. Fundamental Analysis

    Is Apple's Stock Over Valued Or Undervalued?

    Despite several drawbacks, the CAPM gives an overview of the level of return that investors should expect for bearing only systematic risk. Applying Apple, we get annual expected return of about ...
  8. Bonds & Fixed Income

    Figuring Out How To Cover Your Liability Bases

    Whenever we talk about the asset-liability approach to portfolio management (ALM), the concepts of immunization and cash flow matching come into play.
  9. Options & Futures

    How to Use Commodity Futures to Hedge

    Both producers and consumers of commodities can use futures to hedge. We explain, using a few examples, how to achieve commodity hedging with futures.
  10. Trading Strategies

    You'll Lose Profits Without This Trading Strategy

    A trading edge defines your technical or strategic advantage in the highly competitive market environment.

You May Also Like

Hot Definitions
  1. Gordon Growth Model

    A model for determining the intrinsic value of a stock, based on a future series of dividends that grow at a constant rate. ...
  2. Cost Accounting

    A type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step ...
  3. Law Of Supply

    A microeconomic law stating that, all other factors being equal, as the price of a good or service increases, the quantity ...
  4. Investment Grade

    A rating that indicates that a municipal or corporate bond has a relatively low risk of default. Bond rating firms, such ...
  5. Fringe Benefits

    A collection of various benefits provided by an employer, which are exempt from taxation as long as certain conditions are ...
  6. Irrevocable Trust

    A trust that can't be modified or terminated without the permission of the beneficiary. The grantor, having transferred assets ...
Trading Center