Efficient frontier
Certified Financial Planner glossary · Certified Financial Planner
Definition
The set of portfolios offering the highest expected return for each level of risk.
Efficient frontier in plain English
Two portfolios both claim a 10% expected return, but one jitters like a carnival ride and the other sits calmer. Efficient frontier is the curve of portfolios that deliver the highest expected return for each risk level, so anything below it is leaving return on the table for the same bumpiness. Clients do not need the math proof; they need the decision rule: if a proposed mix is dominated by another mix with equal risk and better expected return, it is not on the frontier. Exam items love the "same risk, worse return" elimination.
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