Market portfolio
Principles of Finance glossary · Risk, Return & Portfolio Theory
Definition
The portfolio of all risky assets weighted by market value; the tangency portfolio of CAPM.
Market portfolio in plain English
Imagine you added up every risky investment in the world — every stock, bond, and building — and bundled them into one giant basket, holding more of the big companies and less of the small ones, exactly in proportion to how much each is worth. That basket is the 'market portfolio.' The big idea (from a theory called CAPM) is that this all-in mix is the single most efficient bundle of risky assets anyone can hold, so in theory every investor should own a slice of that same basket and just adjust how much safe cash they keep alongside it. It's the finance version of 'don't pick winners — own a little of everything, weighted by size.'
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