Choosing Between Dollar-Cost and Value Averaging
Investors seek high stock prices when they sell, but not when they buy. As investors wait for a decline, they get lured away from the markets and become tangled in the slippery slope of market timing, which is not advisable for a long-term investment strategy.
Two investing practices that seek to counter the natural inclination toward market timing include dollar cost averaging (DCA) and value averaging (VA).
Key Takeaways
- Dollar-cost averaging requires an investor to allocate a set amount of money at regular intervals, usually shorter than a year.
- Dollar-cost averaging is generally used for more volatile investments such as stocks or mutual funds.
- Value averaging aims to invest more when the share price falls and less when the…
