What is a Constant Dollar Plan?

If you are trying to invest for the future but want to minimizing your risk while trying to maximize the chances of a return on an investment, then a constant dollar plan strategy could be an option for you. A constant dollar plan investment strategy is when securities (typically mutual funds) are bought at regular intervals and for fixed, pre-planned dollar amounts.

Constant dollar plans generally move against the market demand. Meaning that when security prices rise, less is purchase and when security prices fall more securities are purchase. Constant dollar plan strategies are for investors who plan on keeping their securities for the long term – so it makes sense to buy the stocks when they are low and ride through the waves.

The goal of a constant dollar plan is to reduce the risk of an investor. Instead of an investor choosing to buy huge quantities of a security at one given time, the purchasing is controlled not only by timed increments but the restriction placed upon the amount involved in an investor’s constant dollar plan.

The best way for investors to follow a constant dollar plan strategy is to set a realistic spendable dollar amount and then stick to that budget. Since the market is constantly fluctuating it isn’t always possible to get the desired price on a security, by analyzing the performance history of a security you can make some judgments on whether or not to invest in that security; however, that is not always the case because no one really knows what direction that security will go – if everyone did everybody would be rich.