What is Value Averaging?

The Concept
Dollar cost averaging is simple in concept: Invest a fixed amount at equal intervals and continue to do so over a long period. The result is that more shares of a stock or mutual fund are purchased when prices are relatively low and less are purchased when prices are relatively high. This can result in lower average per share cost over time. Dollar cost averaging is a "Buy low, buy less high" strategy, as there are no rules for selling.

If market timing can be hazardous to one's return, it seems to be quite beneficial as well.

Value Averaging is a variation: Instead of investing a fixed amount each interval, the amount invested varies so that the total value of the investment increases by a fixed sum or percentage each interval. If share price increases alone cause the total value of the investment to increase above the planned fixed amount, then the fund must sell shares instead of adding to the investment.

Value Averaging (like Dollar-Cost Averaging) helps investors to tide over market volatility without worrying too much about market timing. Neither approach requires a forecast of market direction. And with both plans, the discipline of periodic investment during all market situations and the continuation of the plan over long investment periods - of 5 years, 10 years, 20 years or even longer - provides substantial benefits.

The Bottom Line:

• The GBC Blue Chip Value Averaging Fund will use Value Averaging to avoid large drops in the overall portfolio value.
• Value Averaging is a nice way to ensure you follow one of the most well known investment mandates: buy low and sell high.
• This method is particularly valuable during times of high volatility to help ensure investors maintain discipline in their investing.

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