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.
