The Dairy Queen Theorem states that you can live a happy and healthy life eating only at Dairy Queen. Breakfast, lunch, dinner...every meal at DQ. It's a central tenet of the Shmoop diet.
We bring this up...mostly because we like thinking about ice cream. But also because the Dairy Queen Theorem provides a similar dictum to the mutual fund theorem.
You are supposed to diversify when you invest. You can't just put your whole fortune in soy futures and hope tofu becomes, um...much more popular. You need to spread your money around...stocks, bonds, precious metals, money in various countries and various currencies. That way, if things go wrong (bad soy harvest, etc.), you don't lose everything.
The mutual fund theorem states that you can achieve this diversification using only mutual funds. You don't have to buy stocks, and then buy some bonds, and then purchase some gold jewelry at a local pawn shop. Instead, you can spread your money around in equity funds and bond funds and gold funds.
You can achieve all the diversity you need through one mode of investment...that's the mutual fund theorem.
Related or Semi-related Video
Finance: What is Capital Appreciation (M...10411 Views
Finance a la shmoop what is capital appreciation as in the sense of an
investment fund or a mutual fund you know that is like what does it mean to
have a mutual fund with a focus on capital appreciation all right people
think more, more assets all right you have capital and yes you [Woman with a vault full of money]
appreciate having that capital but you'd appreciate it more if there was more of
it like it appreciated so a capital appreciation fund is one which focuses
on just growing the assets bigger and bigger don't really care how the capital
gets grown don't necessarily need dividends don't necessarily need minimum
p/e ratios don't necessarily need balance sheet covenants on the
investments you make don't care if it's exposed to the Venezuelan oil companies [Venezuela city landscape]
or the Australian dollar in a cap app fund well you just want the dough to [Money falls into flower pot]
grow and this ethos is in contrast to other flavors of funds which for example
need to throw off cash in the form of dividends like in a growth and income
fund or interest like in a bond fund like you know it's cash people need to
live on right so those have to do a capital appreciation does not so what's
a typical investment in a capital appreciation fund well usually be
something like a mega trend tech stock that just grows or appreciates with time [Man typing on laptop]
and really doesn't throw off much if any of a dividend like Amazon, Netflix
Facebook, Google those guys so think of a capital appreciation fund is the body [Man wearing underpants in a locker room]
builder of the mutual fund world it just wants to grow everywhere
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