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. Dollar-Cost Averaging - DCA

    The technique of buying a fixed dollar amount of a particular ...
  4. Automatic Investment Plan - AIP

    An investment program that allows investors to contribute small ...
  5. Black Box Model

    A computer program into which users enter information and the ...
  6. Market Risk

    The possibility for an investor to experience losses due to factors ...
RELATED FAQS
  1. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  2. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>
  3. What percentage of a diversified portfolio should large cap stocks comprise?

    The percentage of a diversified investment portfolio that should consist of large-cap stocks depends on an individual investor's ... Read Full Answer >>
  4. What asset allocation should I use for my retirement portfolio?

    Asset allocation should be personalized to each individual investor's return objectives and risk tolerance. However, there ... Read Full Answer >>
  5. Why should an investor include an allocation to the telecommunications sector in ...

    An investor should include an allocation to the telecommunications sector in his portfolio, because telecom offers an investor ... Read Full Answer >>
  6. How does being overweight in a particular sector increase risk to a portfolio?

    An investor who is overweight in a particular sector risks a loss in value for the portfolio if there is a downturn in that ... Read Full Answer >>
Related Articles
  1. Active Trading Fundamentals

    Tips For Controlling Investment Losses

    A profit/loss plan helps investors recognize mistakes and invest logically, rather than emotionally.
  2. Investing Basics

    Barking Up The Dogs Of The Dow Tree

    One well-known and successful strategy for cashing in on dividends is the Dogs of the Dow. Here's what you need to know about them.
  3. Options & Futures

    Trader's Corner: Finding The Magic Mix Of Fundamentals And Technicals

    For a record-holding stock trader, CANSLIM is the formula that identifies this magic mix.
  4. Mutual Funds & ETFs

    The Top 3 ETFs For Investing in Agriculture

    Learn about some the best available exchange-traded funds for profiting from exposure to the agricultural sector through stocks and futures.
  5. Investing

    Go Green with a Investment in Green Bonds

    If you want to invest in a socially responsible way, green bonds may be for you. And as the market grows retail investment opportunities will grow too.
  6. Mutual Funds & ETFs

    The Top 3 ETFs For Investing in Australia

    Learn about some of the best performing exchange-traded funds that investors use to obtain exposure to stock investments in Australia.
  7. Investing Basics

    Explaining Assets Under Management

    Assets under management is a metric that measures the market value of assets that an investment company manages for investors.
  8. Professionals

    Target-Date vs. Index Funds: Is One Better?

    Target-date and index funds are difficult to compare because they differ in both structure and objective, though investors can compare two specific funds.
  9. Professionals

    Is a Google Robo-Advisor on the Horizon?

    It's possible that Google is looking to get into the robo-advisor business, either as a new venture or as a way to provide more benefits to employees.
  10. Professionals

    Advisors: Start Coaching Clients from the Start

    Behavioral coaching is vital to help investors stick to plan during market turbulence. Start coaching early and maintain it through the relationship.

You May Also Like

Hot Definitions
  1. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  2. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  3. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  4. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  5. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  6. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!