Mutual fund separation theorem

The mutual fund separation theorem is a theory that explains why many people invest in both stocks and bonds. It basically says that you can get the same rate of return from investing in stocks and bonds individually as you can from investing in a mix of both. To understand this, imagine a rainbow. The rainbow has lots of different colors, and each color is made up of different amounts of red, yellow and blue. In the same way, a mutual fund is made up of different amounts of stocks and bonds and the combination of these two can give you the same return as investing in stocks and bonds separately.