Dollar-cost averaging plans and constant-dollar plans are both formula approaches to portfolio management. Briefly explain the two plans
What will be an ideal response?
Answer: Dollar-cost averaging involves investing a fixed dollar amount in a security at fixed intervals. It's a passive buy-and-hold strategy. If the price of the security declines, more shares are bought; if the price rises, fewer shares are bought. A constant dollar plan divides a portfolio into a speculative and a conservative part. The target dollar amount for the speculative portion is constant, and the investor establishes trigger points at which funds are added to or removed from that portion. For example, if the speculative part goes up, funds are skimmed off and put into the conservative part.
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Fill in the blank(s) with the appropriate word(s).
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