Systematic Investing Group

[lostcowboy]

Value cost averaging, what is it. It is a cross between Dollar cost averaging and a Constant dollar Plan, with a twist. Here is a beginning description on it. http://www.invest-faq.com/articles/strat-dol-val-avg.html , Here is more in depth coverage, http://www.tmag.com/jfsd/pdffiles/v13n1/marshall.pdf , this is a pdf file so you need the free adobe reader. http://www.adobe.com/products/acrobat/readstep.html
There are a lot of articles here. http://tmag.com/jfsd/index.html Also here http://www.efficientfrontier.com/ .
In Value Averaging, by Michael Edleson, He starts out discussing What (He feels) are the shortcoming of DCA, which are different than mine. He says that DCA does not include a growth factor for inflation (your monthly investment do not increase), nor is DCA concerned as to whether you will or will not reach your retirement goals His spreadsheet growth_dca covers this. He then went on to say that there are times when one would want to increase the amount that one invested in the market, like at the bottom of bear markets. This is the constant dollar plan part. He then went on to introduce his second Growth factor, Instead of using a constant dollar value, he uses a dollar value that grows at the market rate. With this he came up with his spread sheet Va_readjustment. When you run this spread sheet, you put in the present value of your portfolio, your two growth rates, what your retirement goal is and how many periods you have left. The main output is called value path. This is what your portfolio should be worth at the beginning of each month. Michael Edleson recommends keeping the growth rates low in the early years of your investment plan, I second that.

Before I got a chance to read the book I made a spread sheet called vca_gainloss, that spreadsheet only increases the dollar value. One of the negative's of Value Cost Averaging Is if you use the original rules when the stock value goes above the dollar value you sell stock. If you have had a Deep Diver stock you could start getting sell signals at a price below Average cost. I did not realize this at first, my spread sheet also has this problem. When I get a chance I will fix this. And let you know, that should boost the profits a little. Also the original rules did not include any buy/sell percentages, it try's to do it right away. Last but not less, He does not give you a method of coming up with the extra funds you will need, I used Mr. Lichello method of spiting the monthly investment into two parts, 75% to go in now and 25% held in reserve. It seemed to work out ok.