A mutual fund is an investment company that pools the money of many investors and invests it on their behalf. Based on a fund’s stated objective, the money is invested in stocks, bonds, money market securities, or a combination of these. At the end of 2004, there were about 8,000 mutual funds with 267 mil- lion accounts worth in excess of $8.1 trillion. All investments have an element of risk. Mutual funds are no different. And, with so many choices, great care should be exercised to find a fund that is right for you. (more…)

The capital allocation line shows the risk-return trade-offs available by mixing risk-free as- sets with the investor’s risky portfolio. Investors can choose the assets included in the risky portfolio using either passive or active strategies. A passive investing strategy is based on the premise that securities are fairly priced and it avoids the costs involved in undertaking security analysis. Such a strategy might at first blush appear to be naive. However, we know that intense competition among professional money managers might indeed force security prices to levels at which further security analysis is unlikely to turn up significant profit opportunities. Passive investment strategies may make sense for many investors. (more…)

An investment portfolio is simply a collection of investment assets. Once the portfolio is established, it is updated or “rebalanced” by selling existing securities and using the proceeds to buy new securities, by investing additional funds to increase the overall size of the portfolio, or by selling securities to decrease the size of investment portfolio. (more…)