frylock wrote:I just read about dollar value averaging, and it looks interesting. Do you know of a site/system that does that automatically?
No, but it's not hard to create a spreadsheet to guide you. I wouldn't mess around with the formulas used in the book on it by Edleson. Just decide on a target monthly growth rate for your portfolio, then for months when stock returns give you all the growth or more, you don't add anything, and for months where they give you less than the target growth path requires, you add enough to hit your target growth rate. Note that if stocks drop a lot, you'll add a lot more than you would with DCA, and if stocks increase a lot, you'll add a lot less (maybe nothing).
You can pick a target growth rate such that if stocks didn't budge, you would end up adding all of your money by the end of your chosen period (in your case, sounds like 12 months). Or you could be more aggressive and set a path so that even if stocks grow at some chosen rate (e.g., 1%/month or about 12%/year--much higher than what most would consider the current expected return for stocks), you'd still end up investing all of your money. Either way, depending on the starting size of your portfolio, you could end up investing everything toward the beginning of the period if we get a large correction, or at the other extreme, nothing if we get a huge bull market.
Here's a really rough example, ignoring compounding. Say you're starting with $100K and you want to assume an aggressive stock return of 1% per month, or about $1,000, and you have $24,000 in cash to deploy (half of your $48,000 or so), so $2,000/month. Your target growth rate would be 3%/month or about $3,000 per month. If stocks rise by 3% or more in month 1, you add nothing. Stocks are flat, you add $3,000. Stocks drop by 3% ($3,000), you add $6,000.
You can easily have the spreadsheet formula include compounding. Using the scenario above, just start with your initial portfolio value, multiply by 1.3, to get the dollar target for one month later ($103,000), the next month would be $103,000 x 1.3 = $133,900, etc.. That gives you 12 rows for your target monthly portfolio values. Each month enter the actual portfolio value in the cell to the right, then in the next cell to the right calculate the difference between actual and target, and that tells you how much to add to your fund(s) (if anything).
There may no be a good scientific justification for this approach, but I found it to be very good emotional training, since you must add more when markets decline (helping overcome fear), and less when markets go up (helping overcome greed).
I understand that it might change per-case basis, but it's weird for me that it's entirely against the principles described here: http://www.bogleheads.org/wiki/Principl ... _Placement
. But right now bonds are only 10% of my allocation so I'm not going to worry about it too much, then maybe I'll reopen a thread just for this issue.
Yes, one thing I really like about Harry's blog (TheFinanceBuff) is that he often challenges conventional wisdom, and provides persuasive arguments to back up his points. But like you say, with such a small bond allocation, and such low bond yields, it really won't make much difference.