TITLE

Value Averaging for 401(k) Plans Hakes More 'Cents' than Dollar-Cost Averaging

AUTHOR(S)
Chen, Haiwei; Estes, Jim
PUB. DATE
February 2007
SOURCE
Journal of Financial Planning;Feb2007, Vol. 20 Issue 2, p56
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
Executive Summary. • Does it make more "cents" for the average 401 (k) investor without a huge reserve of capital to dollar-cost average or to value average? Financial planning literature has not answered this question because previous studies assume that any investment shortfall under value averaging can be filled. Yet value averaging is not self-sustaining because the average investor lacks the requisite capital reserves. • This study develops a feasible value-averaging strategy for average 401 (k) investors by using the equity mutual funds as the driving force and the monthly 401 (k) contributions and the bond account as the natural capital reserve. This feasible approach is called 401 (k) value averaging. • Using monthly historical return data, simulations show that the 401 (k) value-averaging strategy generates a higher terminal value for the 401 (k) retirement portfolio than traditional dollar-cost averaging. Based on the total risk and risk/reward comparisons such as the Sharpe ratio and the Sortino ratio, it is optimal to follow the 401 (k) value-averaging strategy with a target annual growth rate between 8 percent and 12 percent.
ACCESSION #
24018075

 

Related Articles

  • The End of Investing. BIGDA, CAROLYN // Money;Nov2012, Vol. 41 Issue 10, p84 

    The article considers retirement finance and planning. Mutual fund company Dimension Fund Advisors and its founder David Booth are used to illustrate an investment policy concept in which individuals with 401(k) retirement accounts can better save for retirement by focusing on their savings and...

  • Hitting or missing the retirement target: comparing contribution and asset allocation schemes of simulated portfolios. Schleef, Harold J.; Eisinger, Robert M. // Financial Services Review;Fall2007, Vol. 16 Issue 3, p229 

    Personal financial planning entails establishing retirement portfolio goals, which may be identified as specific portfolio target values. The problem of investing to build a retirement portfolio that achieves a specified value at retirement can be modeled as a dynamic multiperiod portfolio...

  • The Costs of Owning Employer Stocks: Lessons from Taiwan. Yi Tsung Lee; Yu-Jane Liu; Ning Zhu // Journal of Financial & Quantitative Analysis;Sep2008, Vol. 43 Issue 3, p717 

    Using data on all employees at listed companies in Taiwan, we find that the bias toward employer stocks is generic to individual investor decision making, but not limited to retirement plans. Seventy-one percent of the sample employees invest in employer stocks and employer stocks make up on...

  • Investment strategy: Protect your portfolio and achieve gains. SCROGGINS, ROBERT C. // Medical Economics;9/10/2014, Vol. 91 Issue 17, p25 

    The article discusses ways to protect an individual's investment portfolio, to optimize investment behavior and to make wise, long-term decisions. Topics covered include the importance of deciding at the start on the amount of money to be invested in order to achieve long-term financial goals,...

  • Bargain financial advice.  // Consumer Reports;Feb2006, Vol. 71 Issue 2, p29 

    The article offers a look at low- and no-cost financial planning services. Brokerage firms, banks, insurers, and mutual fund companies are looking to serve baby boomers who are planning for retirement. The services provide investment advice. Vanguard and T. Rowe Price offer advice on specific...

  • Hey Buddy, Do You Have the Correct Time (Horizon)? Grable, John E.; Archuleta, Kristy; Evans, David A. // Journal of Financial Service Professionals;Jul2009, Vol. 63 Issue 4, p49 

    This paper describes a method used to clarify what practicing financial service professionals (FSPs) mean by the term "investment time horizon." Based on 22 FSPs who participated in focus group discussions, five standardized time-horizon definitions were developed. The terms ultra-short, short,...

  • Planning for Family and Friends: Your Colleagues Weigh In.  // Journal of Financial Planning;Aug2004, Vol. 17 Issue 8, p42 

    This article presents views of several financial planners on planning for family and friends. For David Bixler of Capital Strategies Inc., managing the challenges of having friends and family as clients is an art, learned by doing and suffering some trial and error. It requires a delicate...

  • Tax Independence. Rattiner, Jeffrey H. // Financial Planning;Jun2004, Vol. 34 Issue 6, p117 

    Gives advice to U.S. financial planners on helping self-employed clients maximize the tax benefits from their financial plans. Advantage of retirement plans to clients; Preparation that clients must do to benefit from qualified plans; Clients who would benefit from defined contribution plans;...

  • The Quest for Technology Nirvana. Opiela, Nancy // Journal of Financial Planning;Mar2004, Vol. 17 Issue 3, p32 

    This article focuses on the insights of several financial planners on issues facing their firms. According to the planners, technology nirvana includes everything from a comprehensive financial planning software package to better assistance with compliance issues. David Landers of Landers &...

Share

Read the Article

Courtesy of VIRGINIA BEACH PUBLIC LIBRARY AND SYSTEM

Sorry, but this item is not currently available from your library.

Try another library?
Sign out of this library

Other Topics