Market Risk Timing and Formula Strategies

Whether you call it investing or playing the market, buying and selling stocks is risky business risky but lucrative. In choosing to read this book, you have likely decided to build an investment portfolio that may include some of those risky stocks in order to garner some of those lucrative rewards. Before making investment decisions, you should have a reasonable idea of the typical risks you will face in the stock market and the likely rewards you might expect to earn. This chapter provides...

An Alternate Method

For the computer literate, perhaps a better way to track the value path is with a spreadsheet rather than a formula. If the time indexing in formula (21) bothered you, this direct approach using a computer might appeal to you. Pick any number you want for the initial investment C, and a starting value (which is 0 unless you have a head start). Pick your growth factors r and g. Then calculate the value path by applying the growth factors directly to the investment quantities that are growing. By...

Approximate Growth Adjusted DCA Formula

Vt C x t x 1 R t where R 15 For example, let's go back to the first growth-adjusted dollar cost averaging scenario, where we started with an initial monthly investment of 65.94, increased it by g 0.5 per month, and expected a rate of return of r 1.0 per month on our investments, yielding 100,000 in 20 years. We had to use equation 9 to come up with the C 65.94 figure. We can solve for the approximate C amount using equation 15 , where R is the average of r and g, or 0.75 in this example 100,000...

Foreword by William J Bernstein Preface to the 2006 Edition

1 Market Risk, Timing, and Formula Strategies 3 Distribution of Market Returns 9 MARKET TIMING AND FORMULA STRATEGIES 20 Automatic Timing with Formula Strategies 21 2 Dollar Cost Averaging Revisited 25 DOLLAR COST AVERAGING AN EXAMPLE 26 Over Five-Year Periods 32 LONG-TERM PROBLEMS WITH DOLLAR COST VALUE AVERAGING AN INTRODUCTION 39 SHORT-TERM PERFORMANCE 43 LONG-TERM PERFORMANCE AND Linear, or Fixed-Dollar, Strategies 47 Adjusting Strategies for Growth 51 4 Investment Goals with Dollar Cost...

Constructing a VA Readjustment Spreadsheet

The following spreadsheet shows the solution to the value averaging readjustment problem from Chapter 5, page 90. Start with 6,500, with 17 years 204 months to attain a 100,000 goal, and add other inputs as shown. What would the value path look like for monthly value averaging Put in the 5 inputs you know, and the spreadsheet does all the rest. The outputs are calculated in cells B9-B12, with the value path formula in cell B14. The solution involves an artificial time index as described in the...