Quick Finance Tip – Location Of An Optimal Investor Portfolio

Location of an optimal investor portfolio depends on the investor’s risk preferences.  A highly risk-averse investor may invest a substantial proportion of assets in risk-free. Some less risk-averse investors may wish to accept even more risk because of chances to attain higher returns. Moving from the Capital Allocation Line, we encounter investors who are willing to accept more risk. Again, the optimal investor portfolio is selected on the Capital Allocation Line by overlaying the indifference curves that incorporate investor’s preference.