Formula Plans

Formula Plans Investment plans which are simple, dictate automatic courses of action, and overcome problems of the timing of buying and selling decisions. The investor’s portfolio is divided between equity shares and fixed income securities. Under the constant ratio plant the ratio between the two is fixed. When the price of shares rises by a certain percentage, that percentage of shares is sold and the money invested in fixed interest securities. When the share price falls by a certain percentage, that percentage of money is transferred from fixed interest securities to shares. The variable ratio plan is only a modification of the constant radio plan. IN this, the investor makes adjustments between shares and fixed interest securities as the price of share rises of falls, but there is no rigid ratio fixed between shares and fixed interest securities.

Like all predetermined strategies in an extremely fluid situation, formula plans have provided to be of marginal success, yielding not very much higher returns than a buy –and – hold strategy.

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