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Understanding The Efficient Frontier
Understanding The Efficient Frontier
Understanding The Efficient Frontier
Understanding
nti er
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f
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n
f i cie
f
e
the
eward
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d
t
n
a
se n
f risk
is
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T
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bin
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Th
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High risk
The efficient frontier is an integral part of investment portfolio theory and aims to
find the optimal portfolio structure for investors based on different risk tolerances.
This fact sheet outlines some of the key principles about the efficient frontier,
explaining what it means and how it is used in investment planning.
Your financial adviser can further explain how the efficient frontier relates to your
individual investment portfolio.
FUNDamentals
DISCOVERY INVEST
Each dot
represents a
portfolio with a
mix of assets. The
dots or portfolios
closest to the
efficient frontier
are expected to
show the best
return based on
the relative risk.
Lower
expected
returns
Lower
risk
Higher
risk
FUNDamentals
DISCOVERY INVEST
Higher
expected
returns
Expected return of asset mix
Lower
expected
returns
Lower
risk
Higher
risk
For example,
this portfolio
has a relatively
high level
of risk, for a
relatively small
return.
Lower
expected
returns
Lower
risk
Higher
risk
Lower
expected
returns
Portfolio
B A
Portfolio
A B
Lower
risk
Higher
risk
FUNDamentals
DISCOVERY INVEST
Higher
expected
returns
Equity
Lower
Expected
Returns
Property
Fixed interest
Cash
Lower
risk
Higher
risk
GM_16039DI_14/06/2012