Dollar Value Averaging

Dollar Value averaging (DVA)1, is a technique of adding to an investment portfolio with the objective of providing a greater return than similar methods such as dollar cost averaging and random investment. With the DVA method, investors contribute to their portfolios in such a way that the portfolio balance increases by a set amount, regardless of market fluctuations. As a result, in periods of market declines, the investor contributes more, while in periods of market climbs, the investor contributes less. In contrast to dollar cost averaging which mandates that a fixed amount of money be invested at each period, the value averaging investor may opt to withdraw from the portfolio in some periods where growth exceeded the investor’s established growth target.

Value averaging incorporates one crucial piece of information that is missing in dollar cost averaging – the expected rate of return of your investment. The investor must provide this information for the value averaging formula. Having this data allows the value averaging formula to identify periods of investment over-performance and under-performance versus expectations. If the investment over-performs, the investor buys less or even sells to reduce gains down to the growth target. If the investment under-performed, the investor buys more to reach the growth target.

So how does this work? Let’s say you want to have a portfolio of five coins: BTC, LTC, XMR, NEO, and OMG and you initially invest $1,000 USD into each coin for a total of $5,000 initial portfolio. Let’s further say that you want your portfolio to grow by $100 each and every week. What that means is that you want every position to grow by $20 every week to meet your declared target. Next week, you want $5100 total portfolio. The following week, $5200, then $5300, etc. The first thing you have to do is compare every coin’s worth in your portfolio and invest enough to bring each one up by $20. If the market for a coin was up and your coin grew in value by $10, you only need to invest $10 to bring it to $1020. If a coin fell by $10, you have to invest $30 in the coin to bring it to $1020. If one coin grew to $1030, you can take $10 out of that coin and invest it in the one that fell by $10 and you still have $100 to distribute to the other coins to bring them all to $1020. If you only need $50 this week to bring every coin to $1020 and entire portfolio to $5100, then that’s all you invest this week. If you need $200 the following week to get to $1040 for every coin, then that’s your number to invest that week.

Thus, the difference between DCA and DVA. DCA is a set amount every week. DVA can potentially fluctuate week to week and therein is both it’s drawback and power. The drawback is you’ll sometimes need more funds than anticipated to stay on par with your growth goals and can be a stretch sometime to meet those goals. HOWEVER, it’s also the strength of the system because you’re automatically buying MORE shares in a down market and less in an UP market.

This strategy is a bit more complex to manage, as it does require that the investor track the portfolio performance and calculate the contribution needed for the next period to maintain a constant growth in the value of the portfolio. It can also require large periodic additions of capital during falling markets. The table below is a spreadsheet comparison of a Dollar Cost Averaging strategy and a Value Averaging strategy during a period of varying stock price.2

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thanks bro :fist_right:

this was a great & informative read!!! much appreciated :slight_smile:

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Most excellent work my friend!

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Thank you @mwlang .
I have been DCAing BTC & LTC - I could not be happier…

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Excellent post my friend. Thanks

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Awesome awesome post!

phx-*-

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I’ve shared this post like a dozen times. it really is that awesome. it should be pinned somewhere.

phx-*-

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Do i understand this right to say that this would also work if instead of using a fixed dollar amount of gains every week, you wanted a percentage increase? Example you had $1000 in 5 coins and wanted 1% growth every week, then week two you’d buy/redistribute whatever it took to have $1010, then week 3 repeat again to reach $1021, week 4 = 1031.21, week 5 = 1041.52, and so on.

Thanks!

Phx-*-

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Yes, that’s exactly right. You can either aim for a percentage growth each week, or you can aim for a fixed dollar amount growth. The % growth each week or month works well with stock market where you’re generally only dealing with a 9% to 15% annual growth rate. I think most folks will likely struggle with keeping pace with a regular % growth in cryptos, but it’s definitely there as an option to tap for this strategy.

The main idea is you’re putting less into the higher performers each week/month and more into the under-performers each week/month so you’re effectively buying more shares with less dollars. That is, your cost per share is lower with DVA vs. DCA.

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Value-Averaging-Sreadsheets
This link goes to the publisher’s web page for the book “Value Averaging” The spreadsheets are free! I strongly suggest buying and reading the book many times. You can get the book as a kindle Ebook on Amazon, You can also get a ebook from google play books. The Ebooks are nice as you can put a copy on all your devices. If you want a paper copy you can get that on Amazon as ether a new copy or used copy.This is a extremely in depth book .
Also his formula uses not one growth rate but two growth rates, which most web pages do not talk about.
He also said that both DCA and VA should only be used with mutual funds not separate stocks, that should apply to all the various bitcoins also.
Here is the table of contents.

Table of Contents

Foreword by William J. Bernstein ix

Preface to the 2006 Edition xiii

Preface to the 1993 Edition xix

Introduction 1

1 Market Risk, Timing, and Formula Strategies 3

RISK AND MARKET RETURNS 3

Market Returns over Time 3

Distribution of Market Returns 9

Risk and Expected Return 13

MARKET TIMING AND FORMULA STRATEGIES 20

Timing the Market 20

Automatic Timing with Formula Strategies 21

ENDNOTES 23

2006 NOTE 24

2 Dollar Cost Averaging Revisited 25

DOLLAR COST AVERAGING: AN EXAMPLE 26

SHORT-TERM PERFORMANCE 28

Over One-Year Periods 30

Over Five-Year Periods 32

LONG-TERM PROBLEMS WITH DOLLAR COST AVERAGING 34

Growth Equalization 35

SUMMARY 36

ENDNOTES 37

3 Value Averaging 39

VALUE AVERAGING: AN INTRODUCTION 39

SHORT-TERM PERFORMANCE 43

LONG-TERM PERFORMANCE AND VALUE AVERAGING 47

Linear, or Fixed-Dollar, Strategies 47

Adjusting Strategies for Growth 51

SUMMARY 53

ENDNOTES 54

2006 NOTES 55

4 Investment Goals with Dollar Cost Averaging 57

BACKGROUND 57

Lump-Sum Investments 57

Using the Formula 59

Annuities: Periodic Investments 60

Dollar Cost Averaging and Annuities 63

READJUSTING THE INVESTMENT PLAN 63

The Readjustment Process 64

Flexibility 66

Down-Shifting Investment Risk 69

GROWTH-ADJUSTED DOLLAR COST AVERAGING 71

Exact Formula 72

Approximate Formula 74

Readjusting the DCA Plan 75

SUMMARY 80

ENDNOTES 80

Appendix to Chapter 4: Constructing a DCA Readjustment Spreadsheet 83

5 Establishing the Value Path 87

VALUE AVERAGING VALUE PATHS 87

The Value Path Formula 88

Flexible Variations on the Value Path Formula 89

Readjusting the VA Plan 92

A Cautionary Note 93

An Alternate Method 93

SUMMARY 94

ENDNOTES 95

Appendix to Chapter 5: Constructing a VA

Readjustment Spreadsheet 97

6 Avoiding Taxes and Transaction Costs 101

TAX CONSIDERATIONS WITH VALUE AVERAGING 101

The Advantage of Deferred Gains 101

Deferring Capital Gains Taxes: An Example 102

A Compromise: No-Sell Value Averaging 107

REDUCING TRANSACTION COSTS 111

Limiting Taxes 111

Limiting Costs 112

SUMMARY 113

ENDNOTES 114

7 Playing Simulation Games 117

WHY SIMULATIONS? 117

WHAT AND HOW? 118

Parameters 118

Expected Return 119

Expected Variability 120

Randomness 120

CONSTRUCTING THE SIMULATION 121

An Example 122

ENDNOTES 126

Appendix to Chapter 7: Constructing a Simulation 129

2006 NOTE 131

ENDNOTES TO APPENDIX TO CHAPTER 7 133

2006 NOTE 134

8 Comparing the Strategies 135

FIVE-YEAR SIMULATION RESULTS 135

Using Growth Adjustments 139

No-Sell Variation 142

Volatility 143

TWENTY-YEAR SIMULATION RESULTS 145

SUMMARY 146

ENDNOTES 147

9 Profiting from Overreaction 149

TIRING OF A RANDOM WALK 149

Mean Reversion and Overreaction 150

A Brief Look at the Data 151

WHY DOES THIS MATTER? 160

Timing 161

ENDNOTES 164

2006 NOTE 167

10 Details: Getting Started 169

USING MUTUAL FUNDS 169

The Fund versus Stock Choice 169

Index Funds 171

Information on Specific Funds 172

WORKING OUT THE DETAILS 175

Using a Side Fund 176

Operating Within a Retirement Account 177

Establishing a Value Path 178

2006 NOTE 180

Setting Up a VA Value Path: An Example 181

Other Important Considerations 184

Using Guidelines and Limits 185

NOTES FOR FINANCIAL PLANNERS 186

Advanced Methods 187

SUMMARY 189

ENDNOTES 189

2006 NOTE 191

11 Examples: Strategies at Work 193

THE GOAL AND INVESTMENT ENVIRONMENT 194

Choosing an Investment 194

Setting the Goal (Dealing with Inflation) 197

How Much Should He Invest? 199

INVESTMENT RETURN & TAXES 200

Expected Return 200

Taxes 200

IMPLEMENTING DOLLAR COST AVERAGING 202

1981: Setting Up DCA 203

1982–1983 Investment Results 205

1983: Reassessment and Readjustment 205

The 1985 Readjustment 211

And So On and So On . . . 212

Wrapping It Up: 1991 Results 214

IMPLEMENTING VALUE AVERAGING 215

Establishing the Value Path 215

1983: Readjusting the VA Plan 217

Future VA Readjustments 219

VA Investments 220

SUMMARY 225

KEY FORMULAS 226

ENDNOTES 227

12 A Final Word 229

Index 231

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Finally sitting down to review this @mwlang … great stuff, as usual.

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Yes. We have that too:

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