Formula Investing

AAA

DEFINITION of 'Formula Investing'

A method of investing that rigidly follows a prescribed theory or formula, using the results as blanket investment policy. Formula investing can be related to how an investor handles asset allocation, investments between funds or securities, or decides when and how much money to invest.


INVESTOPEDIA EXPLAINS 'Formula Investing'

One of the most valuable traits of formula investing is that a lot of the decision-making is taken out of the process, which can be a stress reliever for some investors. With formula investing, they simply follow the rules or formula and invest accordingly.

A simple strategy like dollar-cost averaging can help investors to build up their portfolios in a piecemeal fashion, adding small amounts of money over a consistent time frame. An investor must make sure that the formula fits with his or her risk appetite, time horizon and liquidity needs in order for it to be the most effective.


RELATED TERMS
  1. Capital Markets

    Markets for buying and selling equity and debt instruments. . ...
  2. Goal Seeking

    The process of finding the correct input when only the output ...
  3. Fuzzy Logic

    A mathematical logic that attempts to solve problems by assigning ...
  4. Automatic Investment Plan - AIP

    An investment program that allows investors to contribute small ...
  5. Market Risk

    The possibility for an investor to experience losses due to factors ...
  6. Black Box Model

    A computer program into which users enter information and the ...
Related Articles
  1. Tips For Controlling Investment Losses
    Active Trading Fundamentals

    Tips For Controlling Investment Losses

  2. Barking Up The Dogs Of The Dow Tree
    Investing Basics

    Barking Up The Dogs Of The Dow Tree

  3. Trader's Corner: Finding The Magic Mix ...
    Options & Futures

    Trader's Corner: Finding The Magic Mix ...

  4. Human Capital, An Important Asset For ...
    Investing Basics

    Human Capital, An Important Asset For ...

comments powered by Disqus
Hot Definitions
  1. Ghosting

    An illegal practice whereby two or more market makers collectively attempt to influence and change the price of a stock. ...
  2. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  3. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  4. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  5. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  6. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
Trading Center