Value Averaging: The Safe and Easy Strategy for Higher Investment Returns (Wiley Investment Classics Book 35)

by Michael E. Edleson

If you are careful, you can calculate the new $C amount for the remaining 19 years (228 months) in two steps. Think of the $1,100 you’ve already accumulated as one pot of money that will grow over time to help you achieve your goal.

First, this readjustment method is incredibly flexible and can be used to realign your investment performance with your ultimate investment goals on a periodic basis.

Second, bad news in the later stages of an accumulation program will have a significant impact on how much you have to increase your investment to make up the difference.

Because of this, it may be good in the initial years of an accumulation plan to be a bit conservative in your assumptions. Also, after a really good investment year, you could let your ...

Now we will allow for a second form of growth—an increasing periodic investment.

Single Growth Factor DCA Formula (12)

This is a very important and extremely versatile formula, as you will see during the remainder of this chapter.

Even if the formula does produce a number that is several dollars off, this won’t really matter if you periodically readjust your investment plan to account for market performance.

The market’s performance is random, so our actual portfolio value will stray from our target path whenever the market does better or worse than expected.

$C and g,

It is wise to gradually down-shift your risk level as the time of your investment goal approaches.

Start with conservative estimates of how well your investments will do, and take opportunities to shift to lower-return, lower-risk investments later in the plan if you are doing well and if it suits your purpose.

5 Establishing the Value Path

Sample Value Path Formula (20)

Head-Start VA Readjustment Formula to calculate T (21)

This same situation works if your investment time frame changes or if you must take existing capital out of your investment plan to meet some unforeseen expense.

An Alternate Method

用google sheet or excel 來算每期投入金額

By setting the target value for month t equal to: the target value for the previous month times (1 + r), plus the additional investment C(1 + g)t, you can create the target value for every month as a function of the prior month.

Vt = (1 + r) × Vt - 1 + (1 + g)t × C

When using formula plans for “timing” investments, the very rules that can help you corral a higher return can also saddle you with unnecessary taxes and hogtie you with transaction costs.

You pay taxes on capital gains only when you realize the gains (sell profitable positions).

First, you are effectively untaxed on capital gains not yet realized upon your death.

Second, the capital gains rate may be lower in the future than it is currently.

is always possible that they may actually increase instead.

Finally, even if you have to pay the same tax rate on your gains in the future, it is still better to delay paying that tax.

cost of any purchased shares.8 Tax

figuring out the profit (e.g., the amount of money received minus the cost basis of the shares sold).

comparison

distinguish between the general conceptual advantage to tax deferral and the rather small cost (incurred by selling shares) of giving up some of this deferral advantage by using value averaging.

can be small, perhaps even insignificant, over short- and medium-term investment periods.

Theoretically, the cost of pursuing the no-sell variation should be in the form of lower returns, because no-sell value averaging is a sort of middle ground between dollar cost averaging and value averaging.

The small tax savings from not using “normal” selling is far more than offset by the return diminution from not using “normal” value averaging, in this example.

The first is to delay or limit selling.

Placing a limit on selling is a reasonable hybrid strategy, and it avoids wild moves in your portfolio while potentially reducing taxes.

A second approach has to do with the way capital gains taxes are actually paid.

to use no-load mutual funds.

index funds are a particularly good choice in that they mirror the market closely and have extremely low management fees and expense ratios.

simple and reasonable variations that make the strategy more practical.

you could “revalue” your portfolio less often; that is, take action less frequently to meet your value goal.

“do” value averaging quarterly instead of monthly.

simply to refrain from very small trades or to round your required purchase off to the nearest $100 or so.

另一個明智和微小的變化只是避免非常小的交易，或將您所需的購買金額調整到最接近的100美元左右。這樣您就不需要經常投資或出售，而且可以節省時間，交易成本和納稅義務。

We’ve seen that taxes should not be your primary consideration

節稅手法所省下的錢還是比「用節稅手法所得到的報酬」少

Several alternative VA variations work quite well,

交易成本可透過一些方法達到

center and the spread

can’t arrive at those numbers

can estimate them based in part on what we’ve seen in the past.

the rate of return on the stock market was about 7% higher than the return on long-term government bonds.

The expected variability on the market will be the spread with which we design the random market outcomes to fall around the center.