The proposition that an investor should choose the portfolio with the highest expected return for a specific degree of risk. It is used as a rule for investments where portfolios are constructed in a way that they provide the highest return for a given level of variance. The proposition, first introduced by Harry Markowitz, maintains that wise investors choose portfolios located on the efficient frontier. According to Markowitz, there is almost always some portfolio on the efficient frontier that offers a higher expected return and less risk than the least risky of its component security (assuming the least risky security is not of zero risk). The expected return of a portfolio is the weighted average of the expected returns of its component securities. A portfolio’s variance depends to some on the variances and covariance of the component securities.

It is known for short as E-V maxim.