What Is the Efficient Frontier?

By Adam Levy – Updated Aug 7, 2025 at 9:08 PM

Key Points

Efficient frontier visualizes optimal portfolios by balancing returns with risk.
Portfolios right of the efficient frontier yield poorer returns for higher risk.
Robo-advisors use this model to optimize and rebalance client portfolios.

The efficient frontier is the set of portfolios maximizing expected return for a given level of risk, as measured by the standard deviation of returns. Theorized by Nobel laureate Harry Markowitz, the efficient frontier is a cornerstone of his modern portfolio theory. Investors can use the efficient frontier to see the benefits of portfolio diversification in maximizing their returns for their given risk tolerance.

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Hand pointing to a pie chart on a tablet screen. — Image Source: Getty Images

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Graph depicting the efficient frontier of a portfolio consisting of hypothetical stocks and bonds. — Image Source: The Motley Fool

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Data source: Author.
Asset	Expected Return	Standard Deviation
Stocks	11%	15%
Bonds	5%	10%

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Importantly, they also have a correlation of negative 0.3, which means when stocks go up in value the bonds will often go down in value and vice versa.

Here’s a sampling of some potential portfolios you could construct.

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Data source: Author.
Stock Allocation	Bond Allocation	Expected Return	Standard Deviation
0%	100%	5%	10%
10%	90%	5.6%	8.67%
20%	80%	6.2%	7.66%
30%	70%	6.8%	7.1%
40%	60%	7.4%	7.1%
50%	50%	8%	7.66%
60%	40%	8.6%	8.68%
70%	30%	9.2%	10.02%
80%	20%	9.8%	11.56%
90%	10%	10.4%	13.23%
100%	00%	11%	15%

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About the Author

Adam Levy is a contributing Motley Fool stock market analyst covering technology, consumer, and financial stocks and how policy, economic, and consumer trends shape personal finance, Social Security and retirement savings. Before The Motley Fool, Adam was a financial advisor at Edward Jones. He studied finance and electrical engineering at Carnegie Mellon University.

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