>Value Averaging? Not again!
We consider (again!) investing a fixed dollar amount each month (increasing with inflation) ...
We also consider Edleson's
With To be fair in our assessment of I'm not sure I was fair ... last time. I don't think I considered the Money Market fund properly.
- We look at two investors: a
**DCA**investor and a**VA**investor. - They each have $
**A**to invest each month (increasing with inflation). That's our**DCA**investment. - We do this
**DCA**investing for umpteen years and see what's the final value of our**DCA**portfolio (assuming some random sequence of portfolio returns). - With the same sequence of returns, we insist that our
**VA**investments (increasing with inflation) are such that we end up with the same portfolio as the**DCA**investor. - We also calculate how much
__Initial__Money Market the**VA**investor needs to accommodate the monthly portofolio increase. (Let's say it's $**M**.) - We then assume that
*both*investors (that's**DCA**and**VA**) have this $**M**when they start their investing. - The
**DCA**investor just leaves the $**M**in his stock portfolio (subject to those random returns). - The
**VA**investor has that monthly $**A**available (as does the**DCA**investor) and, if she needs more than that (to achieve that fixed portfolio increase) she takes it from her Money Market fund. - If the
**VA**investor doesn't need the $**A**(for example, when she sells shares), then the "extra" monthly dollars go into her Money Market fund. - In effect then, we calculate (each month): $
**X**= (**DCA Investment**) - (**VA Investment**) = $**DCA**- $**VA** and add that to the Money Market fund for the**VA**investor. That's sometimes positive (if the required $**VA**is small or negative) and sometimes negative (if the required $**VA**is large.) - We keep track of the TOTAL number of dollars for each investor (including their Money Market fund) and see who comes out ahead, after umpteen years.
>zzzz Wait! Here's a picture of a spreadsheet which does all this: Just Save target to download the .ZIPd spreadsheet.
Notice, however, that the Money Market fund (for the For the Okay. Just download and play ... |