The Efficient Frontier

The Efficient Frontier is a concept in investing that shows the best possible combination of different assets to achieve the highest expected return for a given level of risk, or the lowest risk for a specific return. It helps investors understand the trade-off between risk and reward, guiding them to make optimal decisions. Portfolios on the frontier are considered efficient because they offer the best possible return for their risk level, while those below it are suboptimal. Essentially, it’s a tool to help investors build well-balanced portfolios aligned with their risk tolerance and financial goals.