XEQT Value Averaging vs Dollar Cost Averaging: Which Strategy Builds Wealth Faster?

A few years ago, I stumbled across a concept called “value averaging” while reading Michael Edleson’s book of the same name. The pitch was irresistible: a systematic investing strategy that consistently outperforms dollar-cost averaging by 1-2% annually. More returns with a rules-based system? Sign me up.

So I tried it. For about four months. Then I quit and went back to plain old dollar-cost averaging.

This is the story of why I switched back, but also a fair and thorough comparison of both strategies – because value averaging genuinely is a clever approach, and for a specific type of investor, it might be worth the extra effort. For most of us buying XEQT in our TFSAs and RRSPs, though? DCA wins. Not because it produces better returns on paper, but because it is the strategy you will actually stick with for 20+ years.

Let me walk you through both strategies, show you the real numbers, and help you decide which one makes sense for your situation.

1. Dollar-Cost Averaging: The Strategy You Already Know

If you have been investing in XEQT for any length of time, you are probably already doing dollar-cost averaging (DCA) whether you realize it or not.

DCA is dead simple: you invest a fixed dollar amount into XEQT at regular intervals – say, $500 every month – regardless of what the price is doing.

• XEQT is at $30? You invest $500.
• XEQT drops to $25? You invest $500.
• XEQT climbs to $35? You still invest $500.

That is the entire strategy. No decisions. No spreadsheets. No math beyond “is it the 1st of the month? Good, $500 goes in.”

The beauty of DCA is that it automatically buys more shares when prices are low and fewer shares when prices are high. Over time, this smooths out your average cost per share and protects you from the emotional trap of trying to time the market.

Why DCA works so well with XEQT:

• Commission-free buying on platforms like Wealthsimple means frequent small purchases cost you nothing in fees
• XEQT’s low MER of 0.20% keeps ongoing costs minimal
• Wealthsimple’s recurring buy feature lets you fully automate DCA – set it and literally forget it
• You never need to look at the price, check a spreadsheet, or make a decision

If you have been automatically investing $500/month into XEQT, congratulations – you are a dollar-cost averager, and you are doing great.

2. Value Averaging: The Strategy You Probably Have Not Heard Of

Value averaging (VA) was developed by Harvard professor Michael Edleson in 1991. It is a more active twist on DCA that adjusts how much you invest each month based on your portfolio’s performance.

Here is how it works:

Instead of investing a fixed dollar amount each month, you set a target portfolio value that increases by a fixed amount each period. Then you invest whatever is needed to hit that target.

Let me make this concrete. Say your goal is to grow your XEQT portfolio by $500 per month. You set a “value path” that looks like this:

• End of Month 1: portfolio should be worth $500
• End of Month 2: portfolio should be worth $1,000
• End of Month 3: portfolio should be worth $1,500
• End of Month 4: portfolio should be worth $2,000
• And so on…

At the end of each month, you check what your portfolio is actually worth, and you invest (or withdraw) the difference.

Example scenario:

• Month 1: Target is $500, portfolio is $0. You invest $500. Simple enough.
• Month 2: Target is $1,000. Your XEQT went up and your portfolio is now worth $550. You invest $450 to hit $1,000.
• Month 3: Target is $1,500. The market dropped and your portfolio is now worth $900. You invest $600 to hit $1,500.
• Month 4: Target is $2,000. Big rally – your portfolio is now worth $1,700. You invest $300 to hit $2,000.

See the pattern? When the market drops, you invest more. When the market rises, you invest less. In extreme cases where the market has rallied significantly, you might actually sell shares to bring your portfolio back down to the target.

This is the core insight of value averaging: it forces you to be more aggressive when prices are low and more conservative when prices are high. In theory, this should produce a lower average cost per share than DCA.

And in academic studies, it does. Edleson’s research and subsequent backtests have shown that value averaging tends to outperform DCA by roughly 0.5-2% annually over long periods.

So why does everyone not do it?

3. A Worked Example: DCA vs Value Averaging with $500/Month

Let me walk through a six-month side-by-side comparison so you can see exactly how these two strategies play out in practice. We will assume XEQT starts at $30.00 and goes through some realistic price fluctuations.

Dollar-Cost Averaging: $500 Fixed Per Month

DCA totals: $3,000 invested, 102.76 shares, portfolio worth $3,288.32. Average cost per share: $29.19.

Value Averaging: $500 Monthly Growth Target

VA totals: $2,712.90 invested, 93.75 shares, portfolio worth $3,000.00. Average cost per share: $28.94.

What Do These Numbers Tell Us?

A few things jump out:

• Value averaging invested less total money ($2,712.90 vs $3,000). That means it had “leftover” cash of $287.10 that could be earning interest elsewhere.
• Value averaging achieved a lower average cost per share ($28.94 vs $29.19). This is the whole point – by investing more when prices dropped and less when prices rose, VA got a better deal on average.
• The monthly investment amount varied wildly under VA – from $326.99 to $571.54. Under DCA, it was always $500. No thinking required.

In this short example, the difference is modest. But stretch this out over 10-20 years, and that lower average cost compounds into a meaningful return advantage for value averaging – if you can stick with it.

That is the big “if.”

4. The Head-to-Head Comparison

Here is where it all comes together. Let me compare DCA and value averaging across the dimensions that actually matter for a Canadian investor buying XEQT.

If you looked at that table and thought “DCA wins in almost every practical category,” you are right. Value averaging has a narrow edge on pure returns, but DCA dominates on everything else that determines whether a strategy actually works in real life.

5. Why Value Averaging Is Harder Than It Looks

On paper, value averaging sounds great. In practice, it has several problems that most articles about it conveniently leave out.

You Need a Cash Reserve

With DCA, you know exactly how much you need each month: $500 (or whatever your number is). You can budget around it easily.

With value averaging, your monthly contribution is unpredictable. In a normal month, you might invest $400. But after a 15% market correction? You might suddenly need to invest $900 or even $1,200 to hit your target value.

This means you need a side fund of cash sitting ready to deploy. That cash is earning very little in a savings account while waiting for its moment. The opportunity cost of holding that reserve partially offsets the return advantage of value averaging.

It Demands Emotional Superhuman Strength

Here is what nobody tells you about value averaging: it asks you to invest the most money at the exact moment you are the most terrified.

When XEQT drops 20% in a month, your value averaging plan says “invest double this month.” Meanwhile, every news headline is screaming about recession, your coworkers are panic-selling, and your gut is telling you to stay far away from the stock market.

DCA, on the other hand, asks you to invest the same $500 you always do. It is psychologically much easier to continue a routine than to actively increase your commitment during a crisis.

I experienced this firsthand. In the third month of my value averaging experiment, XEQT dipped about 8%. My spreadsheet told me to invest $780 instead of my usual $500-ish. I stared at it for a full day before finally making the purchase, and the entire time I felt anxious. The next month, when the market recovered and my plan told me to invest only $280, I felt annoyed that I had “overpaid” the previous month.

The emotional swings were exhausting. And I am someone who reads about investing for fun.

You Cannot Automate It

This is the dealbreaker for me and, I suspect, for most people.

Wealthsimple’s recurring buy feature is the single best thing that ever happened to my investing life. Every two weeks, $500 automatically moves from my chequing account into my TFSA and buys XEQT. I do not lift a finger. I do not open a spreadsheet. I do not even think about it.

Value averaging cannot be automated on any Canadian brokerage platform I am aware of. You need to:

1. Check your portfolio value
2. Calculate the difference between your target and actual value
3. Manually figure out how much to invest (or withdraw)
4. Execute the trade

Every single month. For decades.

That is not investing. That is a part-time job.

Selling Creates Tax Complications

In strong bull markets, value averaging might tell you to sell some XEQT shares because your portfolio has grown past the target. If your XEQT is in a TFSA or RRSP, this is not a problem.

But if you are investing in a non-registered account, selling triggers capital gains. You will owe tax on the gain, which eats into your returns and adds complexity to your tax reporting. DCA is buy-only, so this is never an issue.

6. When Value Averaging Actually Makes Sense

I have spent a lot of time explaining why value averaging is impractical for most people. But I want to be fair – there are genuine scenarios where it can work well.

You might be a good candidate for value averaging if:

• You have irregular income. Freelancers, contractors, and commission-based workers do not have a fixed monthly salary. If you are already used to variable cash flows, the unpredictable investment amounts of VA might feel natural.
• You genuinely enjoy the process. Some people find spreadsheets and monthly calculations fun. If tracking your value path and adjusting your contributions feels like a hobby rather than a chore, VA might suit your personality.
• You are investing exclusively in tax-sheltered accounts. Keeping VA inside your TFSA or RRSP eliminates the tax complications of potentially selling shares.
• You have a substantial cash buffer. If you have $10,000+ sitting in a high-interest savings account beyond your emergency fund, you have the cushion needed to handle the months where VA demands extra-large contributions.
• You have demonstrated iron discipline during market downturns. If you went through the COVID crash of 2020 or the 2022 bear market and did not sell a single share, you might have the temperament for VA. But be honest with yourself here.

If three or more of these apply to you, value averaging could be worth trying. But even then, I would suggest starting with a small portion of your portfolio before committing fully.

7. The Pros and Cons at a Glance

Dollar-Cost Averaging Pros

• Effortless simplicity. One number, one frequency, done. Set up recurring buys and forget about it.
• Fully automatable. Wealthsimple and other platforms handle everything. No manual intervention needed.
• Predictable budgeting. You always know exactly how much is going to investments each month.
• Emotionally painless. No decisions to agonize over. The routine protects you from your own psychology.
• No selling required. Buy-only strategy eliminates tax complications in non-registered accounts.
• Proven track record. Decades of evidence that consistent DCA into broad market ETFs builds significant wealth.

Dollar-Cost Averaging Cons

• Slightly lower theoretical returns. DCA underperforms VA by 0.5-2% in most backtests.
• No responsiveness to market conditions. You invest the same amount whether the market is cheap or expensive.
• Underperforms lump-sum investing. If you have a windfall, DCA typically underperforms investing it all at once.

Value Averaging Pros

• Higher expected returns. Backtests consistently show VA outperforming DCA by a modest but meaningful margin.
• Lower average cost per share. The variable contributions naturally buy more when prices are low.
• Disciplined contrarian approach. Forces you to buy more during downturns and less during euphoria – exactly what the best investors do.
• Built-in target tracking. Your portfolio always stays close to your planned growth trajectory.

Value Averaging Cons

• Complex and time-consuming. Requires monthly calculations, spreadsheet maintenance, and manual trades.
• Cannot be automated. No Canadian brokerage offers automatic value averaging.
• Unpredictable cash needs. You might need to invest 2-3x your normal amount in a bad month.
• Emotionally brutal. Demands the largest investments precisely when fear is highest.
• May require selling. In strong markets, you might need to sell shares, triggering capital gains.
• High abandonment risk. Complexity and emotional difficulty cause many investors to quit mid-strategy.
• Opportunity cost of cash reserve. Money sitting in a side fund waiting for deployment earns minimal returns.

8. What the Research Actually Says

Let me be transparent about what the academic evidence tells us, because I do not want to be dismissive of value averaging just because I personally prefer DCA.

The data does favour value averaging on pure returns. Multiple studies, including Edleson’s original research and subsequent analyses, show that VA produces a lower average cost per share and higher internal rate of return than DCA in most market environments. The advantage is typically in the range of 0.5-2% annually.

However – and this is a massive “however” – the studies do not account for the behavioural reality of investing.

Research from Vanguard, Morningstar, and Dalbar consistently shows that the average investor significantly underperforms the funds they invest in, primarily because of poor timing decisions. People buy high, sell low, skip months, and abandon strategies during downturns.

The behaviour gap – the difference between what an investment returns and what investors actually earn – is typically 1-3% annually. This is larger than the return advantage of value averaging over DCA.

In other words, the strategy that keeps you invested consistently will beat the strategy with slightly better theoretical returns that you eventually abandon. A DCA investor who sticks with the plan for 25 years will almost certainly end up wealthier than a value averaging investor who quits after three years because it was too stressful or complicated.

This is not a hypothetical concern. In my own case and in countless stories I have heard from other Canadian investors, the most common investing mistake is not choosing the wrong strategy – it is stopping the strategy you chose.

9. A Modified Approach: The Best of Both Worlds

If the idea of value averaging appeals to you but the execution seems daunting, there is a middle ground I actually quite like.

Soft value averaging works like this:

1. Set up standard DCA with recurring buys – say, $500/month into XEQT.
2. Keep a small cash buffer (maybe $2,000-$3,000) in a high-interest savings account.
3. When XEQT drops 10% or more from a recent high, make an extra one-time purchase from your cash buffer.
4. Replenish the buffer over time.

This gives you the automation and simplicity of DCA as your baseline, with occasional “bonus buys” during meaningful dips. You get some of the buy-low benefit of value averaging without the spreadsheets, mandatory contributions, or emotional agony.

I have been using this approach for the past couple of years, and it feels right. My recurring buys run on autopilot. Then maybe once or twice a year, when the market has a genuine pullback and XEQT is trading at a meaningful discount, I will throw an extra $1,000-$2,000 in. It is not as mathematically optimal as pure value averaging, but it is infinitely more sustainable.

The key is that the extra purchases are optional. If you miss a dip or do not have extra cash available, your DCA baseline is still doing its job. There is no guilt, no missed targets, no spreadsheet telling you that you are behind schedule.

10. My Recommendation: DCA Wins for Most Canadians

After trying both strategies, reading the research, and talking to dozens of fellow XEQT investors, here is my honest recommendation:

Dollar-cost averaging is the right choice for the vast majority of Canadian investors.

Not because it produces the highest theoretical returns – it does not. Not because it is the most intellectually interesting strategy – it is not. DCA wins because it is the strategy that survives contact with real life.

Real life means months where you are stressed about your job and cannot stomach making investment decisions. Real life means market crashes that make you question everything. Real life means busy seasons where you forget to check your portfolio for months at a time. Real life means budgets that are already stretched thin without unpredictable investment demands.

DCA handles all of this gracefully. You set up your recurring buy, and it runs. Through bull markets, bear markets, recessions, pandemics, and everything in between. No effort required. No willpower needed. No spreadsheets to maintain.

Here is what I want you to do:

1. Choose a fixed monthly amount you can comfortably invest. Even $100/month is a fantastic start.
2. Set up recurring buys on Wealthsimple or your preferred commission-free platform.
3. Pick XEQT as your investment. One fund. Global diversification. Low fees. Done.
4. Forget about it. Seriously. Do not check it daily. Do not second-guess the strategy. Let compound interest and time do what they have always done.

If in five years you are an experienced, disciplined investor who genuinely enjoys portfolio management and has a pile of extra cash sitting around, maybe revisit value averaging then. But start with DCA. Master the basics. Build the habit.

The best investing strategy is not the one with the highest backtested returns. It is the one you will still be doing in 20 years. For almost everyone, that strategy is dollar-cost averaging into XEQT.

Frequently Asked Questions

Is value averaging better than dollar-cost averaging?

On pure returns, yes – value averaging has historically outperformed DCA by about 0.5-2% annually. But in practice, DCA is the better choice for most people because it is simpler, fully automatable, and far easier to stick with over decades. The best strategy is the one you will not abandon.

Can I automate value averaging on Wealthsimple?

No. Wealthsimple’s recurring buy feature only supports fixed-amount purchases (DCA). Value averaging requires you to manually calculate and adjust your contribution each period. No Canadian brokerage currently offers automated value averaging.

How much cash reserve do I need for value averaging?

A good rule of thumb is to keep 3-6 months of your typical investment amount as a cash reserve. If your average monthly target is $500, keep $1,500-$3,000 in accessible cash to cover months where the market drops significantly and your required contribution spikes.

Does value averaging work in a TFSA?

Yes, and a TFSA is actually the best account type for value averaging because you can sell shares without triggering capital gains. Just watch your contribution limits – selling within the TFSA does not free up contribution room until the following year.

What about lump-sum investing versus both of these?

If you receive a windfall or lump sum, research shows that investing it all at once outperforms both DCA and value averaging roughly two-thirds of the time. Both DCA and VA are primarily strategies for investing regular income over time.

Can I switch from DCA to value averaging later?

Absolutely. You can start with DCA now and experiment with value averaging once you are more experienced. There is no penalty for switching strategies, especially inside a TFSA or RRSP.

Disclaimer: This post is for informational purposes only and does not constitute financial advice. XEQT returns are not guaranteed, and past performance does not predict future results. The examples and calculations used are hypothetical illustrations. Always consider your personal financial situation and consult a qualified financial advisor before making investment decisions. The Wealthsimple referral link provides a bonus to both the referrer and the new account holder.