Money Talks: Value Averaging to Reduce Risk

Many investors are familiar with investing by “dollar-cost-averaging” (DCA), which involves investing a fixed dollar amount at specified intervals, whether the market is up or down. Value averaging (VA), like DCA, relies on time—rather than timing—to protect investors from market swings. Under VA, the investor sets a target value for his or her investment at specified periods. Then enough shares are purchased or sold to meet the value target.

In the December 2002 PN/Paraplegia News, read columnist Dan Jones’ comparison of these two methods of investing and particularly the pros and cons of a VA program. He also cautions readers to consider the timing of mutual-fund purchases to avoid a possible tax trap.

 

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