DEFINITION of 'SafetyFirst Rule'
Within the context of postmodern and modern portfolio theory, a safetyfirst rule involves creating a portfolio based on a minimum level of portfolio returns, which is called the minimum acceptable return. By setting up a minimum acceptable return, investors will mitigate the risk of not achieving their investment objective.
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BREAKING DOWN 'SafetyFirst Rule'
A safetyfirst rule is a form of margin of safety that can be used when creating a portfolio using postmodern portfolio theory. When maximizing the objective function, the expected return used in the security market line equation in lowered, to reflect this margin of safety. The objective function in this capacity is the Sharpe ratio or the Sortino ratio.
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PostModern Portfolio Theory  ...
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