Regular investing or lump sum? What the numbers say

Two different situations that get mixed up

When people talk about regular investing (a PAC, "piano di accumulo") two things get blended:

• If money arrives every month (your salary), a regular plan is not a choice: it is the only way to invest. The point is to automate it.
• If you already have a sum sitting idle (an inheritance, severance pay, a sale), the real question is: all at once or in instalments?

Here we cover the second case.

An example with numbers

You have €12,000 to put into an equity fund. Two routes: all at once, or €1,000 a month for twelve months (meanwhile the rest sits idle, earning nothing). Two scenarios, both invented and smooth for simplicity:

If the market rises, going in at once pays more (about €559 in this example); if it falls, instalments lose less (about €1,056). Neither route wins every time. The point: markets rise on average, so on average waiting costs something.

What research says

A 2012 Vanguard study covering US, UK and Australian markets over rolling ten-year periods found that investing a lump sum immediately beat phased entry about two times in three. The explanation is simple: stocks and bonds returned more than cash, and holding money idle while waiting to invest has a cost. The same study notes that phased entry can make sense for those who want to reduce the risk of regret. These are historical data on specific markets: they guarantee nothing about the future.

How to choose

• Long horizon and a strong stomach. If your horizon is many years and you know you won't sell in a panic, the most efficient route is to invest at once, in the amount set in your plan.
• Fear of entering "at the top". If a fall right after buying would make you sell, spreading over 6-12 months is a reasonable price for staying invested. A phased plan you follow beats an optimal plan you abandon: see the guide on why investors earn less than their funds.
• Large amounts relative to your wealth. If the sum weighs heavily on your assets, gradual entry is insurance against regret.
• Never half-way. Decide the number of instalments and amounts in advance and automate: no "I'll wait for a dip".

To compare costs and the effect of time, use the pension fund vs ETF comparison.

Sources

• BenefitsPro, summary of the Vanguard study "Dollar-cost averaging just means taking risk later" (2012)
• Copy of the original Vanguard paper (2012)

The amounts in the example are hypothetical and only show the mechanism; they are not return forecasts.