Computerized Investing > June 18, 2011

Value Averaging Spreadsheet

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The Value Averaging Spreadsheet is another useful spreadsheet developed by AAII. Long-term investors are warned not to try to “time the market,” but investors will inevitably worry about entering the market at the top or exiting at the bottom. This spreadsheet was built to help individual investors reduce their timing risk.

Value averaging is a variation of dollar cost averaging. It offers investors an alternative to the “all-or-nothing” approach (either being in the market or on the sidelines). Value averaging allows investors to ease into the market over time, reducing timing risk. The premise of dollar cost averaging is very simple: invest a fixed amount at equal intervals over a period of time. Because the amount is fixed, investors using this strategy will buy more shares when prices are lower and fewer shares when prices are higher, theoretically lowering the average purchase cost.

Value averaging is a variation of dollar cost averaging where instead of investing a fixed dollar amount at each time interval, the amount invested varies so that the total value of the investment increases by a fixed sum or percentage each interval. If share prices alone increase the value of the investment above the planned amount, the investor must sell shares instead of adding to the investment. The value averaging spreadsheet allows users to input the dollar amount of the initial investment, the dollar amount of the desired increase each period, whether fractional shares can be purchase and whether shares can be sold. The output presented will provide you with the amount to purchase (or sell) in each investment period.

Value Averaging Spreadsheet

System Requirements: Application to edit Microsoft Excel document

Price: Free



Ronald from SC posted over 6 years ago:

I understand this. By the way, is this not a variation of Lichello's AIM method?

Looking at the example in the spreadsheet, how does this work when faced with large lump sum, or moving from, say, a 401K that was in an underperforming asset? Thoughts?

Also, thinking of AIM, why do you choose not to redeem? What is the thinking?

Thanks as always

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