constant ratio plan

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Constant ratio plan

Maintaining a predetermined ratio between stock and fixed income investments through regular adjustments of distribution of funds into different investments. See: formula investing.

Constant Ratio Plan

An investment strategy in which the market value of stocks and bonds are kept at a predetermined ratio. That is, when compiling a portfolio, an investor may decide that 60% of its value will consist of bonds and 40% will be stocks. When prices rise or fall on the securities in the portfolio, the investor will buy and sell accordingly in order to maintain the ratio. A constant ratio plan is a form of active management and is done in order to reduce the risk in the portfolio.

constant ratio plan

A formula plan for investing in which the market value of all stocks in an investor's portfolio is kept at a predetermined percentage, with other investments making up the remainder of the portfolio. Thus, stocks must be sold if they rise in value more rapidly than other investments and bought if they fall in value more rapidly than other investments in the portfolio. As an example, an investor may decide upon a portfolio of 70% stocks and 30% bonds.
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