Inefficient Portfolio

See: Portoflio.

Risk vs. reward. That balance represents the basic consideration when making investment decisions. If you take a big risk (put your life’s savings in lotto tickets), there had better be the potential of a big reward (the billion-dollar super-jackpot).

An inefficient portfolio is one where the risk/reward balance tips too far toward risk. You’ve taken on too much risk for the return you expect to reap.

The lotto example plays out here. While there's the potential for a billion-dollar win, the chances are vanishingly small. Even sinking your entire fortune of $174.23 into lotto tickets doesn't make it likely enough that you'll win to justify the investment. The risk is so high that it makes no sense to buy.

See: Lottery.