Your investment accounts are designed for optimum performance, right? While also being highly efficient?

OK, those were trick questions.

You really want to adjust your return for the amount of risk taken. A higher return is not necessarily better if it comes from taking on excessive, uncompensated risk.

Here are a couple ways of looking at this issue.

In the first diagram, below, I've added points A and B to an image showing the Efficient Frontier. Harry Markowitz developed this concept in the 1950s to show the set of investment portfolios providing the maximum possible return for a given level of risk. Conversely, it shows the lowest possible risk for a given rate of return.

The dots along the green line show portfolios whose returns match the investor's level of risk taken.

* Point A is unattainable, although it's one that many advisory clients ask for in the initial meetings: Low risk, high return. Sorry. That's not really a thing, except for that time your cousin put $5 into the slot machine at Circus Circus and won $1,000. It's clearly not sustainable.

* Point B is the opposite. It's the investor who takes excess risk for a very low return. It's your other cousin who kept pouring hundreds of dollars into the slots and won $3.

In the investing world, Point A is in the realm of "too good to be true." Think Bernie Madoff and his consistent return of 11%, year in and year out, regardless of how benchmarks were performing.

Point B is something like a narrow theme basket, aka "10 hot AI stocks to buy today." That type of bet is subject to big ups and downs with no reliable extra reward for the holding period.

Below, an illustration from New Frontier, which specializes in optimizing portfolio allocations, offers a good look at how specific portfolio models, lined up left to right from conservative to aggressive, maximize the expected return for the amount of risk taken.

On the lower left, you see a portfolio consisting of 20% stocks and 80% bonds. That's taking the lowest amount of risk, as measured by standard deviation, and gets an expected return of about 4%.

You could create your own 20/80 portfolio using ETFs like the iShares MSCI ACWI (ACWI) in a 20% allocation, and an 80% allocation of the iShares Core U.S. Aggregate Bond (AGG) .

You could also use the Vanguard LifeStrategy Income Fund (VASIX), which consists of 20% in global stocks and 80% in bonds.

Here's how that fund performance compares with the Vanguard 500 Index Fund (VFIAX).

As you'd expect, its five-year return is lower than the S&P 500, but it also has less risk, as measured by each fund's beta.

On the upper right, a portfolio of 100% stocks takes greater risk, and has an expected return somewhere in the neighborhood of 7%.

That would be something closer to the S&P 500. In the case of the New Frontier models, the all-stock portfolio is more diversified, containing a mix of market capitalizations and geographies.

Why Not Use All Equities?

You might look at these returns on the efficient frontier and think, "That's an easy choice. I'll just take the 100% stock portfolio, every time."

Not so fast.

The farther right a portfolio sits on the graph, the more its returns have bounced around over time. That, right there, is the added risk of increasing equity exposure.

There are plenty of reasons why all-equity isn't the right fit for many investors, especially those in or near retirement. A big market decline (which eventually happens, even after years of strong rallies) can do irreparable damage to your finances, particularly as you get older and have less time to make up for losses.

The farther left a portfolio falls on the efficient frontier, the smoother its performance. It may seem kind of boring, but at some point, boring becomes suitable for most investors.

Five Points to Keep in Mind

* A higher return isn't "better" if it comes with disproportionate risk. In other words, if your returns aren't improved by taking more risk, the juice isn't worth the squeeze.

* The efficient frontier shows you how various portfolios maximize return for the risk you accept. Remember, there's not one that's somehow better than another; it all depends on your own risk tolerance and risk capacity.