Risk vs Return : The Efficient Frontier
Risk vs Return
The efficient frontier represents those portfolios that have the maximum return for a given level of risk. As an investor, you should target a point along the efficient frontier based on your attitude towards risk. Increasing your allocation to your savings accounts will move your portfolio towards the bottom left of the chart, reducing your risk and expected return. Increasing your exposure to emerging market equities will move it up and to the right.
The chart below shows the risk and return for portfolios entered by other people over the past year. If you have entered your own portfolio it is shown as an orange dot. Ideally, your portfolio will have a higher return than other portfolios with comparable risk.