Dictionary of Finance and Investment Terms: constant ratio plan
constant ratio plan
type of formula investing whereby a predetermined ratio is maintained between stock and fixed income investments through periodic adjustments. For example, an investor with $200,000 and a 50-50 formula might start out with $100,000 in stock and $100,000 in bonds. If the stock increased in value to $150,000 and the bonds remained unchanged over a given adjustment period, the investor would restore the ratio at $125,000-$125,000 by selling $25,000 of stock and buying $25,000 of bonds.
