Is your portfolio risker than you?
Every investor faces the same question: How much risk is right for me? Take on more risk and your potential returns can grow, but so can your potential losses. The key is to find the mix of investments that gives you the best chance of meeting your goals while minimising risk.
What is the efficient frontier?
The efficient frontier is a way of showing the sweet spot between risk and reward. Imagine a curve that plots the highest possible return you could get for each level of risk. Portfolios on this curve are working efficiently. They are delivering the most value for the amount of volatility or risk you are taking on.
Your aim is to move your investments as close to that curve as possible.
Before you can build a portfolio that sits on the curve, you need to know two things:
- Your risk tolerance – How comfortable you are with market ups and downs?
- Your investment goals – Whether you are aiming for growth, income, or a mixture of both
