Buy-&-Hold vs. Constant Mix

The risk tolerance of B&H is positively correlated to investor ealth

The risk tolerance of Constant Mix is proportionally related to investor wealth…

What is the difference? These two things sound the same to me.

The risk tolerance at CM is constant and not related to wealth level.

BH is passively related to wealth.

CPPI is actively related to wealth level.

CPPI has a floor which works as a minimum threshold … buy and hold does not…

So I know it’s a bit counter intuitive, but B+H actually does have a floor.

Its essentially: PF Total Value = Value in c/s - Floor.

So in a case where someone initial weighting is 70/30 - stock to bonds and they had a Total PF Value of 1 million.

Then the floor is essentially 300k, i.e. Buy and Hold until the Total Value of the Portfolio hit below 300k.

Its an obscurity, but its better to know this as oppose to not know this.

Good Luck.

FTFY

Constant mix, on the other hand, does not. Or, rather, it has a floor, but it’s zero.

CPPI had dynamic floor value.

CM has zero

BH has fixed (risk-free assets).

Constant Mix - Absolute RT inc/dec with level of wealth (holds more risky assets as portfolio increases)

Relative RT is constant (same % regardless of wealth).

Kaplan really stressed this but its confused me on a mock or two so far when I see the word “proportionate”