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. 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.
  8. Professionals

    Why Investors Need to Rebalance Their Portfolios

    The best way to explain why one should rebalance their portfolio is to show what could go wrong if one doesn't.
  9. Trading Strategies

    5 Ways To Adapt To Tough Markets

    Tough markets undermine profitability and lower self-confidence. Fight back with five simple but powerful rules of engagement.
  10. Trading Strategies

    Under what circumstances is short selling advisable?

    Find out when short selling a stock is profitable and what an investor should keep in mind before deciding to pursue a short sale investment strategy.

You May Also Like

Hot Definitions
  1. Weather Insurance

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

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

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

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
  5. Fixed Asset

    A long-term tangible piece of property that a firm owns and uses in the production of its income and is not expected to be ...
  6. Break-Even Analysis

    An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even ...
Trading Center