During 2022, accumulation plans (PACs) outperformed <<one-time>> investments (PICs) by more than 20 percent.

“PIC” and “PAC” are two familiar acronyms for investors, identifying investment modes with significant differences. While a PIC (Capital Investment Plan) consists of investing a certain amount in one lump sum, a PAC (Capital Accumulation Plan) means deferring the investment by investing in regular installments over time.

In the medium to long term, the specific goal of those who subscribe to a PAC is to achieve capital more outstanding than the sum of the periodic savings made. It is, therefore, ideal for those who intend to accumulate capital over time but do not have any in the immediate term. Investing in a PIC, on the other hand, is suitable for those individuals who have much cash to invest in the immediate term, such as those who retire or inherit a large sum of money.

These two investment methodologies also differ in their level of risk. If a certain amount of capital is invested in one lump sum, as in the case of the PIC, the risk borne by the investor is higher. With the PAC, on the other hand, given the periodic investment mode (monthly, quarterly, etc.), it allows the risk to be “spread out,” reducing the probability of buying at the least good times. Empirical evidence conducted on the results of five-year investment results in world equities through PAC and PIC shows that in medium and short time frames, the latter has a more significant variance; in fact, the study highlights that with an investment in the form of PAC, after 5 years, a shortfall probability of 17%, while with PIC this corresponds to 27%.
Therefore, investing gradually with a PAC tends to be less risky than investing all at once with a PIC.
Instead, by extending the duration of PIC and PAC to a 10-year horizon. The shortfall probability falls sharply in both cases but remains clearly in favor of the PAC: 9 percent, compared with 15 percent for the PIC.

PICs and PACs are often not at odds with each other. It is common for an investor to start investing with previously accumulated capital through a PIC and then invest smaller amounts “in installments” through a PAC.
Another advantage of PACs is that they incentivize the investor to save (and invest) an amount of money each month. Some investment platforms even allow automatic PACs to be set up; others do not have this feature, and it will be up to the investor to invest a predetermined amount of money (e.g., 20 percent of monthly income) in the chosen instruments, always on the same date. From a long-term perspective, it is crucial to stick to this rule and always stick to the selected date to eliminate the emotional component.

Carrying out an analysis at the level of returns, on the other hand, PICs turn out to be more convenient in bull markets, i.e., during upward phases of the markets. At the same time, the PAC, which has the advantage of spreading the risk over time, will be more convenient in sideways phases and bear markets, i.e., during phases of falling prices.
An important point concerns the costs associated with individual PAC payouts: as the costs per payout increase, PAC performance worsens.

Nevertheless, departing from theory for a moment and focusing on factual reality, which investment strategy among these has performed best during this year?
In our analysis, we assumed that by investing every third Monday of the month starting in January.

During 2022, a PAC on the Nasdaq 100 would have outperformed a PIC on the same index by more than 20 percent (-9 percent instead of -29.2 percent). The PAC on the Nasdaq 100 would have helped stem losses by more than 20 percent compared to a one-time investment in early January, but that is not the most fantastic thing about PACs. In fact, in a hypothetical (but realistic) scenario in which the Nasdaq returned to its January 3 values: the investment via PIC would have broken even, while the PAC would have posted +23.7%.
However, how was this possible? In ours, as in any other scenario in which an asset goes through a prolonged bearish phase and then returns to all-time highs, periodic investments through accumulation plans allow us to reduce the average price at which we buy the asset and make a profit even long before it returns to the value of our first investment.
However, one-time investments are not necessarily to be considered “bad”-think, for example, of the case of those who hold much cash to invest in the immediate term (perhaps because they have sold their house or retired or inherited a small amount of money, etc.)-but entering the market through an accumulation plan has the dual vanity of reducing timing risk and incentivizing saving, which, especially in the early stages, is as important as the investment itself.

So what is the perfect time to start investing? The perfect time does not exist; the perfect time is now, but mind you, not all-in.

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