# How to determine desired/required value with "value averaging"?

As opposed to dollar cost averaging (DCA), value averaging (as described in this eHow article) is a technique where the investor determines the value the investment should have after a given time frame (monthly or quarterly). The actual performance of the investment then determines how much needs to be bought or sold to achieve the pre-determined value.

This Investopedia article explains the below value averaging example, where the required (aka desired) value is always $1000 more than the previous quarter. My question is how do you determine what the desired/required value should be especially for a retirement account where the desired amount is 30 years away and even then hard to determine? Can you use a desired rate of return (eg. 9%) plus the amount you can afford to contribute each quarter? ## 1 Answer You can use whatever kind of appreciation profile you want. If your goal in 30 years is (say)$1,080,000 then that averages out to $3,000 per month over the thirty years. If you're bringing in the big bucks now you can start by contributing$3,000 the first month. If your investment gains $20 that month, you only need to contribute$2,980 to stay on schedule. If it lost $20 the first month, you contribute$3,020 the next. Either way you're on schedule: $3,000 x 2 =$6,000. Repeat 358 more times and you've arrived at your goal.

If you're just starting out and not making a lot, you can do just $100/month the first year (plus or minus the appropriate amount), and increase it in subsequent years so that the total of all of those figures is your$1,080,000.

If you want to assume a certain rate of return, then you can get the monthly amount using this calculator. Putting in ($)1080000 for Wealth Sum, 30 (years) for the term, and 3(%) for the annual rate of return (conservative) gives$1,853.32. This would be your base amount you'd contribute each month.