Formula Investing

Formula investing

A formula-based investment technique in which investment decisions are made using predetermined timing or asset allocation models, e.g., dollar cost averaging.

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Formula Plan

An investment strategy that calls for the buying and selling of securities according to a set formula. Both long-term and short-term formula plans exist, as well as high- and low-risk plans, but most rely heavily on previous market indicators. For this reason it is difficult to include a new issue of stock in a formula plan. Formula plans aim to eliminate personal opinions, emotions, and judgments from investing by never deviating from the formula.

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Formula investing. When you invest on a set schedule, you're using a technique known as formula investing. You're formula investing when you dollar cost average, or make investments to maintain a predetermined asset allocation.

One appeal of this approach, for investors who follow it, is that it eliminates having to agonize over when to buy or sell. It also encourages regular investing. But it does not guarantee your portfolio will grow in value or that you won't lose money.