Talk:Dollar cost averaging

From the reference Value Averaging, follow the Wiley link (at page bottom) to: Value Averaging: The Safe and Easy Strategy for Higher Investment Returns.

There are 2 possibly useful spreadsheets. One from VA Chapter 4, one from VA Chapter 5. I downloaded the comprehensive spreadsheet. An illustrative example would be very helpful to supplement the quote box.

--LadyGeek 17:08, 11 August 2011 (EDT)


 * Since I do not have excel, you might want to provide an example. I have saved an image of a comparison chart (VA vs. DCA) but it is copyrighted.--Blbarnitz 18:01, 11 August 2011 (EDT)

The Excel file works in LibreOffice (freeware similar to Open Office) and imports cleanly into Google Docs. In-lieu of an Excel example, it might be better to describe the process in more detail (the quote box may be too complicated for those without a math background). The Gummy stuff reference explains how value averaging can have a large impact on your contributions in a volatile market, which is not emphasized in the other references.

I see the comparison chart, it should be straight-forward to replicate using a spreadsheet with different inputs. The Gummy stuff reference also has an instructive spreadsheet which looks useful - it's standalone and designed to compare DCA with value averaging.

There's also comparisons between DCA and lump sum (moneychimp.com).

I'll take a crack at it. --LadyGeek 09:49, 13 August 2011 (EDT)

The Value Averaging spreadsheets (exponential plots) didn't show what I felt was a clear, easy to understand, example of how this works. The Investopedia table was much better. I used the Investopedia spreadsheet (Choosing Between Dollar-Cost And Value Averaging) to confirm my methodology, then expanded and reorganized the table. I did some experimenting with the market price. I did 2 cycles (increase, decrease over time) to see what happens to the periodic Value Averaging contribution.

Does this sound OK to put in the wiki article? It's based on the spreadsheet. -


 * You have to be careful in a declining market, as you will need to have additional funds. As time progresses, you will need even more funds to reach the amount required for the chosen period. If the market is volatile near the end of the investing time frame, you will need a lot of funds. This may catch investors unprepared for this additional expense.

This file was imported from Excel, conditional formatting was dropped. Google Docs won't conditionally format based on cell value. I had the cells flagged where the required investment amount (Column G) was greater than planned.

If you change the market price for Period 12 from $11.00 to $14.00, the Amount Invested During Period goes negative. Gummy stuff's article says this may happen. I'm not sure what it means (sell shares?).

The formula for Value Averaging, Vt = C * t * (1+R)t, is a rearrangement of the Time Value of Money equation.

--LadyGeek 17:45, 13 August 2011 (EDT)


 * My tentative set of discussion points regarding VA:


 * 1) VA adds a growth factor (by formula, consisting of estimates of both the investment's return as well as growth in the contribution level) to the regular periodic investment of savings flows. If an investor's contribution amount is not likely to grow, this factor should be set at 0% so that estimated investment growth is the residual growth factor.
 * 2) VA may require both purchases and sales of the underlying investment, based on the investment performance of the investment. The strategy requires a cash account for holding prospective purchases as well as any sales proceeds.
 * 3) VA sales may require realizing taxable gains. Thus, one might restrict the strategy to tax advantaged accounts; or alternately, adopt a policy constraint forbidding sales in the taxable account.
 * 4) You have to be careful in a declining market, as you will need to have additional funds. As time progresses and the account value grows, you will need even more funds to reach the amount required for the chosen period. If the market is volatile near the end of the investing time frame, you will need a lot of funds. This may catch investors unprepared for this additional expense.
 * 5) VA most often provides a lower average cost per share than does DCA, and also provides for a higher IRR. This does not, however, mean that VA will result in a higher net return.--Blbarnitz 18:28, 13 August 2011 (EDT)