What is the 'Mutual Fund Theorem'
An investing theory, postulated by Nobel laureate James Tobin, that states that all investors should hold an identically comprised portfolio of "risky assets" combined with some percentage of riskfree assets or cash. A conservative investor would hold a higher percentage of cash, but would have the same basket of risky investments in his or her portfolio as an aggressive investor.
BREAKING DOWN 'Mutual Fund Theorem'
The mutual fund theorem came about as a result of the meanvariance framework laid out by Harry Markowitz and his theories on how diversification limits portfolio risk. The viability of the mutual fund theorem has been questioned because several important assumptions must be in place for the theorem to be proved. These include a lack of transaction costs and perfectly transparent markets.

Coase Theorem
A legal and economic theory that affirms that where there are ... 
James Tobin
An American economist who won the Nobel Memorial Prize in Economics ... 
Capital Market Line  CML
A line used in the capital asset pricing model to illustrate ... 
Capital Allocation Line  CAL
A line created in a graph of all possible combinations of risky ... 
Homogeneous Expectations
An assumption in Markowitz Portfolio Theory that all investors ... 
Central Limit Theorem  CLT
A statistical theory that states that given a sufficiently large ...

Investing
Understanding Portfolio Investment
Portfolio investment involves buying securities with the expectation of earning a return on them. 
Managing Wealth
Modern Portfolio Theory: Why It's Still Hip
See why investors today still follow this old set of principles that reduce risk and increase returns through diversification. 
Investing
Redefining Investor Risk
Changing the way you think about time and risk can change the way you invest. 
Investing
Introduction To Investment Diversification
Reducing risk and increasing returns in your portfolio is all about finding the right balance. 
Retirement
A SanitySaving Retirement Stock Portfolio
The market rollercoaster has many retirees calling it quits on stocks. Big mistake. 
Financial Advisor
Make Your Portfolio Safer With Risky Investments
A highrisk security can reduce risk overall. Find out how it works. 
Investing
In Praise Of Portfolio Simplicity
Find out how you can streamline your investments for greater returns. 
Managing Wealth
Manage Investments And Modern Portfolio Theory
Modern Portfolio Theory suggests a static allocation which could be detrimental in declining markets, making it necessary for continuous risk assessment. Downside risk protection may not be the ...

What are the main principles of the HeckscherOhlin Model?
Learn about the four main principles of the HeckscherOlin model, and find out how the model describes patterns of commerce ... Read Answer >> 
What is Fisher's separation theorem?
Fisher's separation theorem stipulates that the goal of any firm is to increase its value to the fullest extent, regardless ... Read Answer >> 
How is portfolio variance reduced in Modern Portfolio Theory?
Learn about modern portfolio theory, specifically what it asserts about asset allocation and managing portfolio risk through ... Read Answer >> 
How do I calculate the percentage gain or loss for my portfolio when all of the stocks ...
Finding the total percentage gain or loss on a portfolio requires a few simple calculations. First, you should understand ... Read Answer >>