Historical Comparison of Value Averaging, Dollar-Cost Averaging, and Random Investing

Summary

The article reviews a historical-data study comparing value averaging (VA), dollar-cost averaging (DCA), and a randomized contribution schedule across equity, gold, and commodity indexes. DCA invests a fixed amount at regular intervals. VA instead sets a target path for portfolio value and buys more when the portfolio falls short, or sells when it rises above the target. The randomized approach varies whether and how much to invest while matching DCA’s expected contributions. Returns are assessed using internal rates of return across rolling investment horizons, with end-of-period liquidation for DCA and random investing and interim sales possible under VA.

The reported results generally favor VA, with its relative advantage becoming clearer over longer horizons; DCA does not consistently outperform random investing. The article reports modest differences and some short-horizon exceptions, and it says the analysis does not establish statistical significance. The findings depend on historical index data, the selected return assumptions, and the treatment of cash flows, so they do not establish that VA will outperform in future markets or after implementation costs.

Key ideas

• DCA makes regular fixed contributions, while VA adjusts contributions or sells to keep portfolio value on a preset growth path.
• The comparison also includes a randomized contribution method designed to have the same expected investment as DCA.
• The study measures internal rates of return across rolling horizons and several equity and non-equity indexes.
• The reported historical results generally favor VA, especially over longer holding periods, but include exceptions.
• The article finds no consistent advantage for DCA over random investing and does not establish statistical significance.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.