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Computerized Investing > June 18, 2011

Value Averaging Spreadsheet

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by CI Staff

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.

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