{{Short description, Stock market investment plan The constant ratio plan was one of the first plans devised when institutions started to invest in the

stock market A stock market, equity market, or share market is the aggregation of buyers and sellers of stocks (also called shares), which represent ownership claims on businesses; these may include ''securities'' listed on a public stock exchange, as ...

. The plan is often called rebalancing. Another type of plan is called a "variable ratio plan". There are several ways of executing these plans. The simplest is called the Constant Dollar Plan, which has been discussed in various investing books.

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One possible scenario is an investor with $10,000 dollars to invest. He invests half into

stock In finance, stock (also capital stock) consists of all the shares by which ownership of a corporation or company is divided.Longman Business English Dictionary: "stock - ''especially AmE'' one of the shares into which ownership of a company ...

s, and the other half into

bond Bond or bonds may refer to: Common meanings * Bond (finance), a type of debt security * Bail bond, a commercial third-party guarantor of surety bonds in the United States * Chemical bond, the attraction of atoms, ions or molecules to form chemical ...

s or a

money market fund A money market fund (also called a money market mutual fund) is an open-ended mutual fund that invests in short-term debt securities such as US Treasury bills and commercial paper. Money market funds are managed with the goal of maintaining a hi ...

. If his

shares In financial markets, a share is a unit of equity ownership in the capital stock of a corporation, and can refer to units of mutual funds, limited partnerships, and real estate investment trusts. Share capital refers to all of the shares of an ...

cost $10.00, he invested $5,000.00, so he has 500 shares. Later after a market move, he finds his shares are valued at $3.00 a share, so he has lost 70% of his stock

portfolio Portfolio may refer to: Objects * Portfolio (briefcase), a type of briefcase Collections * Portfolio (finance), a collection of assets held by an institution or a private individual * Artist's portfolio, a sample of an artist's work or a ...

. He now transfers $3,500 into the stock portfolio, in order to bring the value back to $5,000.00. He now has 1,666 shares. Later, the market recovers and his shares are now valued at $10.00 a share. His shares are now worth $16,660; he sells $11,660 and puts the proceeds into his bond portfolio. He now has $5,000 in the

and $13,160 in bonds.

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Further reading