Efficient Frontier

Captain Kirk was looking for the final frontier. This is something far more boring (unless you're thinking a lot about retirement...in which case it might be more interesting than boldly going where no one has gone before).

The efficient frontier is a mathematical way to express the best possible portfolio for any investor's risk/reward profile. As you probably know, Wall Street is all about the balance between fear and greed. Or risk and reward, to put it in more, well, Vulcan terms.

For any investor, there's a certain amount of risk they're willing to take on. The efficient frontier curve helps them figure out the best mix of investments to achieve the optimal growth for the amount of risk they're willing to tolerate.

Normally, the efficient frontier process gets used by defining your risk tolerance and then letting the math show you the best way to optimize your return. However, you can also use it to target a certain return level and then have the technique show you the best way to minimize your risk. You might do this if you have to make a certain amount for retirement. Just hope the curve doesn't settle on a point labeled "just bet on black and hope for a hot streak..."