Introduction
The basic formula of value averaging… is to invest whatever is needed to make the value of your asset holdings increase by some preset amount each investment period.
–Michael Edleson1
- dollar cost averaging, and
- portfolio rebalancing.
Value Averaging
Combining dollar cost averaging and portfolio rebalancing:
- you buy more assets when prices are low and fewer when prices are high, and
- you allocate more money to stocks when equity prices are low and less to stocks when equity prices are high.
Summary
Said differently: dollar cost averaging addresses when and how many assets to buy. Portfolio rebalancing addresses when and what assets to sell. Therefore, value averaging permits higher returns than dollar cost averaging alone.
For More on this Topic
Edleson, Michael. Value Averaging. John Wiley & Sons. 2007.
Updated on February 13th, 2019