mutual funds
ETF's
value averaging
tax issues
investing 3a style
which bank
value averaging

A Professor called Edleson, taking another step to force investments when prices are low, and even incorporating a mechanism to sell when prices reach certain hights, devised value averaging.

Instead of simply adding X-amount into your portfolio every month (week, semester, year...) you decide in the beginning, how much your portfolio shall be worth any given time. (i.e. you start with a sum X to start with, and you decide to increase your portfolio by a certain sum per month.)

The value of your portfolio will of course fluctuate according the movements of the markets, and thus will you have to put in more money every month, when the markets drop (to keep up with your projected growth) or less when the markets rise. There might even be times when you will have to withdraw moneys when markets make a big jump up.

This all seems logic in an academic sense, as it really forces you to buy low, and sell high.

But there are certain draw back's:

The administration of such a portfolio amounts to an fair-sized Excel sheet, and needs careful attention at regular intervals.
One will have to make a calculation of how much a portfolio will have to grow every month. Something that is filled with rough guesswork at best of times. Of course can you say: I will need X amount when I'm 45 in order to retire early, and then work out how much you have to save every month. But even this number can be nothing short of arbitrary, as there are factors like: Inflation, live expectation, change of lifestyle, health, development of social security...
Many people in their accumulation phase would be hard put to suddenly even out ones portfolio after a 20% market decline. As John Mayard said: Markets can remain irrational longer than you can remain solvent.


For those who wish to explore the subject further, Peter Ponzo (alias Gummy) has written some very nice spread sheets that can be found here:

In case Gummy's site is not online see also here: