Value Cost Averaging

Recently, I came across a news article talking about value cost averaging. Basically, value cost averaging is a improved version of dollar cost averaging which requires some active monitoring to managing of your investment account.

Value cost averaging takes into consideration the performance of your funds before investing the appropriate monthly cash sum into the funds while dollar cost averaging would just invest the fixed amount of monthly cash sum into the funds. An example would be that a DCA strategy to invest a monthly sum of $200 into a US equity fund, but for VCA, if the funds underperformed like 1% as compared to last month, you would have to put in $200 + the additional 1% loss that you incurred. However, if the fund grow by 1% as compared to the previous month, you just need to put in $200 - additional 1% gain. Hence, this strategy buys low and sells high, and adjust accordingly to the performance of the fund.

I had created a simple spreadsheet should you require help in starting up a new VCA investment plan for yourself.

Value Cost Averaging Plan

Hence, value cost averaging is in fact looking at the targetted fund amount rather than the fund cost. The consideration is to reach the targetted value of the fund rather than having a targetted investment sum that you wish to put into a fund.

Stagnant markets

Recently, all major markets had been sluggish and most had dropped significantly. Some examples are STI from 3300 to about 3000 (10% drop), Brazil from 74000 to 67000 and Hang Seng had dropped till 24000. I had previously sold my Brazil fund at about 73000 for a profit of 20% as it is one of the couple of funds that is still in the black and that I think it is edging too fast up.

For the past few days, most markets are flat without signs of improving. The Brazil index is showing quite a large fluctuations (1%-2%) and just yesterday, it had pushed up to 68000 mark. However, it is still too early to determine if the Brazil index would drop after a day of gains till 65000. As for the rest of the market, investors might wish to put in some capital but note that recovery might not take place that fast even though I think it is already bottoming out.