Indexfundfan\’s blog (new URL is

April 3, 2006

Value averaging

Filed under: Investing — indexfundfan @ 4:56 pm

The topic of value averaging came up again (49263) on the Diehards forum. From Marshall’s Spring 2000 paper “A STATISTICAL COMPARISON OF VALUE AVERAGING VS. DOLLAR COST AVERAGING AND RANDOM INVESTMENT TECHNIQUES“:

According to Edleson [3], the idea behind VA is simple. The investor sets a predetermined worth of the portfolio in each future time period, as a function of the size of the initial investment, the size of periodic investments and the yield expected. The investor then buys or sells sufficient “shares” or units of the investment such that the predetermined portfolio worth is achieved at each revaluation point.

Here’s the conclusion of the paper:

Results strongly suggest, believe it or not, that value averaging does actually provide a performance advantage over dollar-cost averaging and random investment techniques, without incurring additional risk.


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