Investor Education
Balancing Risk and Return
Get the most out of your financial portfolio.
In today's complex financial markets, you have many options when it comes to selecting your investments. Each investment also carries some risks, making it important to choose wisely if you are selecting just one. The good news is that there's no rule that says you must stick with only one type of investment. In fact, you can potentially lower your investment risk and increase your chances of meeting your investment goals by practicing "asset allocation".
Nobel prize winners Drs. Sharpe and Markowitz devoted much time and research to determine the most effective way to invest assets over time to achieve the desired financial goal. Their work resulted in what is known as the efficient frontier — a theoretical curve that represents the ideal balance of risk and reward in an investment portfolio.
- When a portfolio contains the proper mix of asset classes and investment styles so that it lands on the curve when placed in this model, it is considered efficient.
- When determining an appropriate asset allocation strategy to construct a portfolio that is as efficient as possible, you also need to consider your unique needs and time horizon.