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Cash drag affecting investment returns

Does "Cash Drag" affect Value Averaging Investment Returns?

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Value averaging is a formula investment strategy which has be shown to achieve lower average costs and higher rates of return than alternative strategies.

The power of the Value Averaging method derives from its marriage of two proven but separate techniques: Dollar Cost Averaging and Portfolio Rebalancing. Value Averaging is not new as it was first researched and written about in 1988 by then Harvard Professor Dr. Michael Edleson. By considering a portfolio’s expected rate of return (something that the "Dollar-Cost Averaging" method neglects), the "Value Averaging" method helps to identify periods of over and underperformance. In his own words, Edleson defines the value averaging concept as: "... make the value not the market price of your stock go up by a fixed amount each month."

The mathematical imperative of Dollar Cost Averaging (DCA), the time honored purchase of equal periodic amounts of stock or mutual funds, forces investors to buy more shares when prices are low than when they are high, increasing overall returns, on average. Rebalancing, on the other hand, is most often applied to mature portfolios and mandates the periodic adjustment of portfolio allocations back to a set policy, forcing a strong policy of buy low / sell high discipline into an investors trading decision making.

The genius of VA lies in the combination of the two techniques, VA and DCA, into the accumulation phase of a portfolio. Not only are more shares bought when prices are low and fewer shares when prices are high, as with DCA, but more money is deployed into stocks when prices are low and less when prices are high producing yet more salutary long term results. VA is particularly valuable during times of high volatility and has shown to produce better results over time than the old "dollar-cost averaging" method.

Value Averaging is a simple proven investment method that savvy investors can chose to adopt as part of a well-rounded financial plan. We believe that it is a strategy that works regardless of the economic times and it allows investors to feel comfort knowing that there is a high probability that their capital accumulation needs will be met. While past out-performance is no guarantee of future out-performance, investors and financial advisors should consider implementing the Value Averaging strategy since the probability of achieving the target value for a portfolio is very high and hence ideal for financial / retirement planning. The financial services industry would also benefit from this technique enabling them to offer a research based "sell" as well as their plentiful "buy" signals.

At VA Investment Software, we have developed a web-based calculation / analysis engine that allows us to back-test the Value Averaging (VA) investment strategy, over any time frame, using historical data from any Stock, ETF or mutual fund.

The Value Averaging Software is now available for license to financial services companies such as stock brokerage firms and mutual fund companies.

Brokerage firms or mutual fund companies are invited to Contact Bruce Ramsey for a DEMO of this amazing software at                        905-901-3063 or 716-304-8483





Value averaging investing - presentation

Value Averaging Presentation

Value Averaging Software Screenshots

Value Averaging calculator main input screen Main input screen
This is the main data entry screen, which also shows the results of the value averaging analysis.
VA calculator results screen Results
This is the comparison screen which shows the final results and compares VA to DCA
VA calculator dollar cost averaging DCA Table
This screen shows the Dollar Cost Averaging analysis.
VA calculator graphs Graphs
This screen shows the data in graph format.
VA calculator reports screen Reports
This is the reports screen.
Value Averaging Book - michael edleson

Click on the picture to read the book


“It’s about as close to ‘buy low, sell high’ as you’re going to get without a crystal ball”.

Michael Edleson


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