Your VA target grows $1,000/month. After month 3, your target is $3,000 but portfolio value is only $2,200. How much do you invest this month?

You invest exactly enough to bring the portfolio to its target: $3,000 target − $2,200 current value = $800. This is the defining feature of value averaging — the investment amount is variable.

What is the core idea of value averaging?

Set a target portfolio value that grows by a fixed amount each period. Buy more when markets fall (portfolio below target) and buy less or sell when markets rise (portfolio above target).

How does value averaging lower average cost vs DCA?

By buying more shares when prices are low (when portfolio is below target) and fewer when prices are high. This naturally tilts purchases toward cheaper price points.

What is the main practical challenge of value averaging?

Requires a cash reserve for large catch-up purchases in down markets. In prolonged bear markets, required contributions can become very large — most investors cap the maximum monthly investment at 2-3× the baseline.

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IntermediateInvesting Strategy

Value Averaging: The Smarter Cousin of DCA

Value averaging (VA) sets a target portfolio value that grows by a fixed amount each period. You buy more when prices are low and less (or even sell) when prices are high — automatically buying the dip without guessing the bottom.

TL;DR

How It Works

Set a target: your portfolio should be worth $1,000 after month 1, $2,000 after month 2, $3,000 after month 3, and so on (growing $1,000/month). Each month, check your actual portfolio value. If it's below target, buy the difference. If it's above target, either hold or sell the excess.

Key Terms:

value pathtarget portfolio valuevariable contribution

→Dollar-Cost Averaging →Lump Sum vs DCA

Value Averaging: The Smarter Cousin of DCA

How It Works

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