Michael E. Edleson

We often hear advice to "dollar-cost average" into investments. Even Ric Edelman mentions value averaging, briefly and not at all clearly, before concluding that most people are content to dollar-cost average and that's fine. Then investors labor mightily to select funds that they hope will give them a slight edge. While these efforts may be all well and good-- at least as an absorbing mental exercise-- if just 1% of the time and energy spent on such research and dithering were devoted to setting up a simple value-averaging schedule and acting on it, they could be way ahead. My experience thus far is all-too-brief, but I can already see (via a simple comparative Excel spreadsheet) the benefit, in terms of internal rate of return and number of shares bought, of value averaging compared to what I would have garnered with the lazy man's way of mere dollar-cost averaging. If someone had introduced me to the idea thirty years ago, how much better off I would be today! Like many of us, I could have adjusted how my regular 403(b) or 401(k) contributions were being deployed on an ongoing basis. In addition to the tangible results would be two valuable psychological ones: (1) A habit of paying some attention to the market; and (2) Making friends with volatility: that is, developing an appreciation buttressed by personal experience, that the bear can be good for you! I'd suggest that, along with a few basic principles like asset allocation, value averaging should be standard practice, shown to young adults as soon as they begin contributing to retirement accounts or otherwise saving their money.

Fear not: the concept does not at all require reading a geeky book like this to implement. However, as one probably less conversant with the subject than the earlier reviewer, I found this book fascinating, partly for the financial math it introduces. (At least, it constituted my introduction.) What he finds labored I found thorough and systematic. And for "formulaic", we could substitute "disciplined." This is not a treatise on the subject of investing, but a description of one tool. If the question is "what shall we do with a regular stream of new money?" and the usual formulaic answer is "dollar-cost averaging", then a better formulaic answer is a strength, not a weakness. I've studied this book twice and should do so again to flesh out my understanding.

There is just one intriguing aspect that I wish he had addressed: Suppose we want to build an investment position in a particular fund as quickly as possible consistent with exploiting value averaging and avoiding sales. What would the ideal "path" be? It stands to reason that this would depend on the initial value of the position, and on its standard deviation. After considerable thought and a little backtesting, it seems to me that a good guideline might be to plan on contributing 1/2 of the annualized standard deviation (as a percentage) to the investment per month on average, while being prepared to contribute as much as one standard deviation under normal circumstances. A rare occasion would need rebalancing. As to what is practical over the course of even a single year, the initial position will be considerably smaller than I had assumed at first-- and this illustrates the power of the technique. But my expertise is pathetic compared to the author's. This proposal can certainly be refined. I'd love to see how the man who literally wrote the book on the topic would discuss this question.… (plus d'informations)