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. Investing Basics

    Understanding Risk Averse Investing

    Risk averse describes a low level of risk an investor is willing to accept on his investments. An investor who is risk averse prefers little risk and is willing to accept a lower return because ...
  8. Investing Basics

    Are You Investing With A Purpose?

    We all appreciate having a wide variety of investing choices, but a random collection of investments does not make an investing plan.
  9. Active Trading Fundamentals

    20 Rules To Trade More Professionally

    Break free from the pack and join the professional minority with an approach that raises your odds for long term prosperity.
  10. 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 ...

You May Also Like

Hot Definitions
  1. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
  2. Prepaid Expense

    A type of asset that arises on a balance sheet as a result of business making payments for goods and services to be received ...
  3. 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. ...
  4. 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 ...
  5. Law Of Supply

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

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