Value Averaging: The Strategy That Buys More After a Fall
Value averaging targets how much your holding is worth, not how much you invest. You buy more after a fall and less after a rise. How it works in crypto.
By StakeBible
Value averaging is a close relative of dollar-cost averaging with one important change. Instead of investing the same amount each period, you decide how much your holding should be worth each period, and invest whatever it takes to get there.
It was described by Michael Edleson, a finance professor, first in a 1988 paper and then in a 1991 book called Value Averaging.
How it works
You set a target path for the value of your holding. A simple one grows by the same amount each month: $500 after the first month, $1,000 after the second, $1,500 after the third, and so on.
Each month, you compare what your holding is worth with the target:
| Month | Target value | Value before buying | You invest |
|---|---|---|---|
| 1 | $500 | $0 | $500 |
| 2 | $1,000 | $400 (price fell) | $600 |
| 3 | $1,500 | $1,300 (price rose) | $200 |
When the price falls, the gap to the target is larger, so you buy more. When it rises, the gap is smaller, so you buy less. In the original version, if the holding rises above the target, you sell the excess.
Why people use it
It leans harder than DCA against the direction of the market. After a drop, DCA buys the same amount at the lower price; value averaging buys more of it. Over a volatile period, that tends to lower the average cost further than DCA does.
The catches
- It needs cash in reserve. After a sharp fall, the amount to invest can be several times the usual one. In crypto, where drawdowns of 70% or more have happened in every cycle, the required contribution can outgrow what you planned to spend. Many people cap the monthly amount, which turns it back into something closer to DCA.
- It sells in rising markets. The original rule takes profit when the holding runs ahead of the target. That can mean taxes, and it can mean selling early in a strong year.
- It still buys what you chose. Like DCA, it controls the price you pay, not whether the asset recovers. Buying more of a coin on the way to zero loses more.
A common compromise is value averaging without the selling: buy the gap when the holding is below target, invest nothing when it is above.
Value averaging on StakeBible
The value rhythm in our investment plan is a different idea with a similar name: every day it shows you coins trading below the price our model predicts, so the choice of what to buy follows the forecast. If you want the classic strategy described here, you can follow it by hand with the amounts in the table above.
For the simpler, fixed-amount version, see dollar-cost averaging. Plans are built in the investment plan.