Cutoff Point

A "cutoff point" is totally dependent on the risk-seekiness of the investor in question. The cutoff point for a 20-year-old guy who just came into some money and wants to grow that money quickly...is going to differ substantially from a 60-year-old woman who's been working her whole life and is five years from retirement. Why? Because the 20-year-old's risk aversion is, typically, much higher than that of the 60-year-old.

In terms of finance, the cutoff point occurs when an investor is willing to buy a security. When the security reaches a particular point and the investor decides it's time to pull the trigger, we hit the cutoff point.

What’s also important to understand is that the rate of return an investor hopes to see affects the cutoff point as well. If an investor is not very risk averse, and is happy with safety and smaller gains, he'll be willing to purchase at a higher price, or cutoff point, as would be the case with the almost-retired woman.