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CFI Blog Personal Finance FAQ Series: Should You Value Cost Average Only When the Market is Down?

If you’re value cost averaging, and when the appointed day to invest comes, the market is up a ton. Should you try to wait for a down day to invest?

Take a look at the video below and find out what to do. While you’re at it, you can get my 52 week Financial Game Plan by filling out the box right beneath this.

Should You Value Cost Average Only When the Market is Down?

The transcript follows.

For those of you who do not know, I am a fan of value cost averaging rather than dollar cost averaging. The idea behind value cost averaging is that you’re forced to sell high and buy low rather than continuing to buy regardless of how the market has performed.

It would seem like the logical extension of this is that you should try to time the market so that you buy low.

I advise against this approach, though. First, it prevents you from selling high. If the market is up, then you may need to be selling rather than buying, depending on your value cost average targets. Secondly, how do you know that, when the market goes down again, it’s going to be lower than it is on the day you originally were supposed to make the purchase? You may wind up worse off than you would have been had you simply stuck to the plan.

I can’t predict what the market is going to do. While Monkey Brain thinks he can, I know I can’t. So, rather than trying to predict the market, I simply pick a date each month (I do it on the first of the month) and put in my trades then. That way, I’m not tempted to try to time the market or deviate from my plan.

Related topics:
Value Cost Averaging or Dollar Cost Averaging?
ETFs or Index Funds for Value Cost Averaging?

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John Davis
John Davis is a nationally recognized expert on credit reporting, credit scoring, and identity theft. He has written four books about his expertise in the field and has been featured extensively in numerous media outlets such as The Wall Street Journal, The Washington Post, CNN, CBS News, CNBC, Fox Business, and many more. With over 20 years of experience helping consumers understand their credit and identity protection rights, John is passionate about empowering people to take control of their finances. He works with financial institutions to develop consumer-friendly policies that promote financial literacy and responsible borrowing habits.

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