value averaging

A variation on dollar-cost averaging, where instead of investing a fixed amount each interval, the amount invested varies so that the total value of the investment increases by a fixed sum or percentage each interval. Value averaging forces sales when prices rise sharply and forces larger purchases—more shares purchased—when prices fall. If share price increases alone cause the total value of the investment to increase above the planned fixed amount, then the investor can sell shares or postpone adding to the investment. Value averaging may have an edge over dollar-cost averaging because it is more aggressive; however, value averaging requires more monitoring, more transactions costs and, because it triggers sales, potentially more tax consequences.