What is Formula Investing?

With formula investing, a market participant follows a structured plan that determines factors such as asset allocation, types of securities invested in, or the amount and frequency of investments. Some examples of common styles of formula investing include dollar-cost averaging, dividend reinvesting and ladders.

What are the pros and cons of Formula Investing?

Formula investing takes most of the discretionary decision-making out of the investment process, which can reduce stress for investors and help them automate their strategies; investors simply follow the rules or formula and invest accordingly. A drawback of using formula investing is the inability to adapt to changing market conditions.

What is magic formula investing?

Magic formula investing refers to a rules-based, disciplined investing strategy that teaches people a relatively simple and easy-to-understand method for value investing. It relies on quantitative screens of companies and stocks, and is designed to beat the stock market's average annual returns using the S&P 500 to represent the market return.