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

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Overview

Michael Edleson first introduced his concept of value averaging to the world in an article written in 1988. He then wrote a book entitled Value Averaging in 1993, which has been nearly impossible to find—until now. With the reintroduction of Value Averaging, you now have access to a strategy that can help you accumulate wealth, increase your investment returns, and achieve your financial goals.

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Overview

Michael Edleson first introduced his concept of value averaging to the world in an article written in 1988. He then wrote a book entitled Value Averaging in 1993, which has been nearly impossible to find—until now. With the reintroduction of Value Averaging, you now have access to a strategy that can help you accumulate wealth, increase your investment returns, and achieve your financial goals.

Read More Show Less

Product Details

  • ISBN-13: 9780470049778
  • Publisher: Wiley
  • Publication date: 10/27/2006
  • Series: Wiley Investment Classics Series , #35
  • Edition number: 1
  • Pages: 256
  • Sales rank: 340,212
  • Product dimensions: 4.07 (w) x 9.49 (h) x 0.71 (d)

Meet the Author

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.
Includes spreadsheets on a companion Web site: www.wiley.com/go/valueaveraging

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Table of Contents

Foreword by William J. Bernstein.

Preface to the 2006 Edition.

Preface to the 1993 Edition.

Introduction.

1 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.

2 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.

3 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.

4 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.

5 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.

6 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.

7 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.

8 Comparing the Strategies.

FIVE-YEAR SIMULATION RESULTS.

Using Growth Adjustments.

No-Sell Variation.

Volatility.

TWENTY-YEAR SIMULATION RESULTS.

SUMMARY.

ENDNOTES.

9 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.

10 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.

11 Examples: Strategies at Work.

THE GOAL AND INVESTMENT ENVIRONMENT.

Choosing an Investment.

Setting the Goal (Dealing with Inflation).

How Much Should He Invest?

INVESTMENT RETURN & TAXES.

Expected Return.

Taxes.

IMPLEMENTING DOLLAR COST AVERAGING.

1981: Setting Up DCA.

1982–1983 Investment Results.

1983: Reassessment and Readjustment.

The 1985 Readjustment.

And So On and So On . . . .

Wrapping It Up: 1991 Results.

IMPLEMENTING VALUE AVERAGING.

Establishing the Value Path.

1983: Readjusting the VA Plan.

Future VA Readjustments.

VA Investments.

SUMMARY.

KEY FORMULAS.

ENDNOTES.

12 A Final Word.

Index.

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  • Posted October 22, 2012

    Highly Recommended--Use this book to enhance your long-term returns!

    "Value Averaging: The Safe and Easy Strategy for Higher Investment Returns" presents a highly practical and yet ingenious way to improve your investment returns and avoid market pitfalls. It is highly readable, easy to understand, and down-to-earth with numerous examples presented clearly. Written by Michael E. Edleson, with a Ph.D. from MIT, it is very well researched and supported by historical evidence of real markets and Monte Carlo simulations. The book contains straight-forward data tables, which are explained in the text. Value Averaging [VA] is an improvement over Dollar Cost Averaging [DCA], which is also covered in this low-cost, high-value book. The two methods are explained in detail and compared. In most cases, Value Averaging is superior to DCA. VA automatically and predictably forces the wise investor to invest more dollars at market bottoms and low points and less dollars at market highs, sometimes even providing for the investor to take some money out near and at market peaks. VA is mildly complex, yet flexible, and there is more than enough explanation and clarity to help the investor navigate his way to higher returns without difficulty. There are also easy to use mathematical formulas provided to determine the optimal customized amount to invest each month under varying market levevls as time passes. This book is "the missing link" in every good investor's library.

    1 out of 1 people found this review helpful.

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  • Posted April 15, 2010

    I Also Recommend:

    Best finance book I've ever read

    This is flat out the best finance book I've ever read. Value Average investing solves that niggly question of "how much should I be saving?" With this investment style, you will see, point blank, how much you should be setting aside each month to reach your retirement goal. I've used it to set up a retirement plan that will have me sitting on $4-$6 million when I retire, in 30 years, on a single paycheck. Don't believe me? Get the book, read it over the weekend, and grab the free spreadsheet offered online.

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