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Reviewed by Jul 30, 2021| Updated on
Confluence is a blend of several strategies and views that form a complete plan. A confluence generally happens when two distinct strategies or ideas are used in unison to create an investment plan which is in sync with the goals and risk profile of the investors. The term ‘confluence’ may also be utilised in the technical analysis through reading charts and advancing levels where several indicators are connected such that it helps in identifying the potential opportunities.
Confluence originates from its bearing topologic definition that is considered as the point where several running bodies of water come together and combine into forming a single waterbody. The financial advisors may make use of confluence to offer various investment-related services to their customers from different sources of investment. The technical analysts commonly make use of the confluence concept in identifying and supporting their technical trades made through several aspects.
Confluence lets financial and investment advisors merge several investment ideas to form a single portfolio that completely depicts the risk profile and requirements of customers. The confluence of a portfolio may be accomplished through investing in several account and vehicles. For instance, an investment advisor, with a client who is aggressive with his investment approach, can determine his client to adopt 30/70 allocation. In this strategy, 30% is invested in instruments that have minimal risk. The rest 70% can be invested in those instruments that are risky and have the potential to offer high returns, for example, stocks of new companies. A few examples of risk-averse instruments are corporate bonds and debentures. The blend of these two unique strategies employed in a single investment portfolio will meet the customer’s risk profile and depicts the usage of the concept of confluence to accomplish the desired result that will delight the customer.