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Efficient Frontier

Efficient Frontier Defined

Investors should generally seek the greatest return for a given level of risk. This concept, known as the Efficient Frontier, was first defined in 1952 by Harry Markowitz in the Nobel prize-winning research that launched Modern Portfolio Theory.

The efficient frontier represents those portfolios that are considered the most efficient-that is, have the greatest return for a given level of risk.

The Efficient Frontier plots all optimal portfolios in a given time period based on three measures:

  • Mean return
  • Standard deviation (a measurement of risk)

The resulting curve is reflective of the correlations (a statistical measure of how two securities move in relation to each other) of the two asset classes.

 

 

¹ Standard Deviation: A statistical measure of the historical volatility of an investment, usually computed using 36 monthly returns. More generally, a measure of the extent to which numbers are spread around their average. The higher the number, the more volatility is to be expected.

² No investment strategy can guarantee returns in a declining market.

Source: Calculated by Rydex SGI using data from Morningstar Direct. All rights reserved. Used with permission. Performance displayed represents past performance, which is no guarantee of future results. This example is for illustrative purposes only. The chart above depicts the efficient frontier of equity and bond portfolios illustrated in 10% increments. Equity returns are based on the returns of the S&P 500® Index, which includes the reinvestment of dividends. Bond returns include the reinvestment of dividends and are based on the Morningstar Long-Term U.S. Government Bond Index. The S&P 500® and the Morningstar Long-Term U.S. Government Bond are unmanaged and not available for direct investment. The index returns do not reflect any management fees, transaction costs or expenses. Click here for a description of the referenced indices.

Download a copy of the Efficient Frontier for more information.

 

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The alternatives strategies and asset classes mentioned are not suitable for all investors. Many alternative strategies use sophisticated and aggressive investment techniques such as leveraging, short selling and derivatives. The more you invest in leveraged instruments, the more the leverage will magnify any gains or losses on those investments. The use of short selling involves increased risks and costs. You risk paying more for a security than you received from its sale. Theoretically, stocks sold short have the risk of unlimited losses. The use of derivatives such as futures, options and swap agreements may expose an investment to additional risks that it would not be subject to if you invested directly in the securities underlying those derivatives. Additionally, certain alternative strategies tied to hard assets such as commodities, currencies and real estate, may be subject to greater volatility as they may be affected by overall market movements, changes in interest rates or factors affecting a particular industry, commodity or currency, -such as droughts, floods, weather, livestock disease, embargos, tariffs and international economic, political and regulatory developments. No investment strategy can guarantee a return in a declining market. Additionally, an investor could lose all or a substantial amount of their investment. For more information about these strategies and their risks please consult your financial advisor.

This material is not intended to be a comprehensive overview of the subject matters discussed. It is intended to be general in nature and should not be construed as investment advice or a recommendation of any specific security or strategy. Before investing in any of the investment products or strategies discussed, consult with your financial advisor to determine if they are appropriate for your objectives, risk tolerance, income level and investing time horizon.

Rydex SGI offers funds with investment strategies similar to those referenced on GetAlts.com.

Read the fund's prospectus and summary prospectus (if available) carefully before investing. It contains the fund's investment objectives, risks, charges, expenses and other information, which should be considered carefully before investing. Obtain a prospectus and summary prospectus (if available) at www.rydex-sgi.com or call 800.820.0888.

Rydex|SGI funds are distributed by Rydex Distributors, LLC (RDL). Security Investors, LLC (SI) is a registered investment advisor, and does business as Security Global Investors® and Rydex Investments. SI and RDL are affiliates and are subsidiaries of Security Benefit Corporation, which is wholly owned by Guggenheim SBC Holdings, LLC, a special purpose entity managed by an affiliate of Guggenheim Partners, LLC, a diversified financial services firm with more than $100 billion in assets under supervision.

©2012 Rydex SGI. All rights reserved.