Value Averaging: The Safe and Easy Strategy for Higher Investment Returns

by Michael E. Edleson; Foreword by: William J. Bernstein

• ISBN13: 9780470089019
• ISBN10: 0470089016
• Format: eBook
• Copyright: 2007-01-01
• Publisher: Wiley

Summary

Michael Edleson first introduced his concept of value averaging to the world in an article written in 1988. To satisfy investor interest, he wrote a book entitled Value Averaging,which further detailed this method. Following the publication of the last edition of this highly sought after book in 1993, it has been nearly impossible to find-until now. With the reintroduction of Value Averaging, you now have access to Edleson's original work on a strategy that can help you accumulate wealth, increase your investment returns, and achieve your financial goals. Michael E. Edleson is a Managing Director of Morgan Stanley and oversees the firm's equity risk globally. Prior to that, he was Chief Economist of NASDAQ and a finance professor at Harvard Business School. Edleson earned his PhD at MIT.

Table of Contents

Foreword

Preface to the 2006 Edition

Preface to the 1993 Edition

Introduction

Market Risk, Timing, and Formula Strategies

Risk and Market Returns

Market Returns over Time

Distribution of Market Returns

Risk and Expected Return

Market Timing and Formula Strategies

Timing the Market

Automatic Timing with Formula Strategies

Endnotes 2006

Note

Dollar Cost Averaging Revisited

Dollar Cost Averaging: An Example Short-Term Performance

Over One-Year Periods

Over Five-Year Periods

Long-Term Problems with Dollar Cost Averaging

Growth Equalization

Summary

Endnotes

Value Averaging

Value Averaging: An Introduction Short-Term Performance

Long-Term Performance and Value Averaging

Linear, or Fixed-Dollar, Strategies

Adjusting Strategies for Growth

Summary

Endnotes 2006

Notes

Investment Goals with Dollar Cost Averaging

Background

Lump-Sum Investments

Using the Formula

Annuities: Periodic Investments

Dollar Cost Averaging and Annuities

Readjusting the Investment Plan

The Readjustment Process

Flexibility

Down-Shifting Investment Risk

Growth-Adjusted Dollar Cost Averaging

Exact Formula

Approximate Formula

Readjusting the DCA Plan

Summary

Endnotes

Appendix to Chapter 4 Constructing a DCA Readjustment Spreadsheet

Establishing the Value Path

Value Averaging Value Paths

The Value Path Formula

Flexible Variations on the Value Path Formula

Readjusting the VA Plan

A Cautionary Note

An Alternate Method

Summary

Endnotes

Appendix to Chapter 5 Constructing a VA Readjustment Spreadsheet

Avoiding Taxes and Transaction Costs

Tax Considerations with Value Averaging

The Advantage of Deferred Gains

Deferring Capital Gains Taxes: An Example

A Compromise: No-Sell Value Averaging

Reducing Transaction Costs

Limiting Taxes

Limiting Costs

Summary

Endnotes

Playing Simulation Games

Why Simulations? What and How?

Parameters

Expected Return

Expected Variability

Randomness

Constructing the Simulation

An Example

Endnotes

Appendix to Chapter 7 Constructing a Simulation 2006

Note

Endnotes

To Appendix to Chapter 7 2006

Note

Comparing the Strategies

Five-Year Simulation Results

Using Growth Adjustments

No-Sell Variation

Volatility

Twenty-Year Simulation Results

Summary

Endnotes

Profiting from Overreaction

Tiring of a Random Walk

Mean Reversion and Overreaction

A Brief Look at the Data

Why Does This Matter?

Timing

Endnotes 2006

Note

Details: Getting Started

Using Mutual Funds

The Fund versus Stock Choice

Index Funds

Information on Specific Funds

Working Out the Details

Using a Side Fund

Operating Within a Retirement Account

Establishing a Value Path 2006

Note

Setting Up a VA Value Path: An Example

Other Important Considerations

Using Guidelines and Limits

Notes

For Financial Planners

Advanced Methods

Summary

Endnotes 2006

Note

Examples: Strategies at Work

The goal and Investment Environmen

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