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What Is the Efficient Frontier?

The efficient frontier is the set of optimal portfolios that offer the highest expected return for a defined level of risk or the lowest risk for a given level of expected return. Portfolios to the right of the efficient frontier are sub-optimal because they have a higher level of risk for the defined rate of return, while those below don't provide enough return for the level of risk. It is a key concept in modern portfolio theory and helps investors understand the best balance between risk and return when constructing their portfolios. 123c