What is the plan of a constant ratio?

constant ratio plans are examples of investment approach that defines the content of the portfolio based on assets. The plan of constant ratio is basically trying to determine the balance between the types or classes of investment, which are maintained as part of the investor's share. The purpose of this kind of investment strategy is to stabilize the value of the portfolio by moving money between assets to maintain the minimum total value, regardless of the performance of individual securities.

In a sense, the plan of a constant ratio is somewhat like applying the principle of scale. If the items on each side of the scale are more or less the same, it is uniform. The same applies to a constant ratio plan. If all securities are maintained with a certain value per class or type of security, the portfolio is balanced and considered a uniform or equal nature. If one security starts inadequately powerful, this throws a portfolio of balance and requires redistribution to re -It has gained a fair level of security allocation.

Generally, a constant ratio plan requires that it be able to use the same securities to restore balance when one or more securities pass through the slump. This is achieved by moving the money associated with other securities in the portfolio to cover losses generated by insufficiently powerful securities. Just moved enough to restore balance, and helps to cover the descending trend until it is clear whether the safety will recover and start to rise again.

Using this kind of allocation of assets is a popular way to stick to shares of shares that the investor considers very desirable. If it is suspected that the safety will recover and start to perform after a period of time, the constant ratio plan will minimize the total loss and allow the investor to justify the suspension on safety temporarily. This approach is often used with a longHome established supplies that pass through the slump, but are expected to recover, even if the recovery time is considered long -term.