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Value averaging: Dollar cost averaging on steroids?

In print this week

Value averaging: Dollar cost averaging on steroids?

Herbert Lian Published on Wed, Oct 31, 2018 / 7:00 PM GMT+8

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SINGAPORE (Oct 29): As a financial adviser representative, a common complaint I hear from clients on regular investment plans is that dollar cost averaging is a little simplistic. Sure, investing the same dollar amount every period helps increase returns by buying more units of stock when prices are low. But surely one can do better? Shouldn’t there be a structured way to invest a higher dollar amount when prices are low, and fewer dollars when prices are high?

As it turns out, such an alternative does exist. Instead of fixing the dollar amount invested each period, value averaging works by fixing a target portfolio growth rate (called the “value path”). The dollar investment in each period is then the difference between the actual portfolio value and the value path.