This website is for financial advisers within the UK, Customers looking for Zurich products please go to Unless you are a financial adviser in the UK who has entered into separate contractual arrangements with Zurich Intermediary Group Limited (“ZIG”) for access to the secure parts of this website, the viewing of this web site is subject to Disclaimers, which, by continuing to access this site, you acknowledge that you have read and accept.

We use cookies to provide you with a responsive service to make your experience of our website(s) better. Please confirm that you agree to our use of cookies in accordance with our cookies policy.

By continuing to use our website we will assume that you are happy to receive non-privacy intrusive cookies. Please be aware that if you disable cookies some functionality on the site will not work.

Alternatively, read our cookies policy to find out more about our cookie use and how to disable cookies.

    • Protect the environment. Think before you print.

What is phased investing and does it work?

25 March 2020

When it comes to your clients’ investments, should they take the leap on day one or phase in? We run the numbers…

Tablet with graphs

‘Buy at the bottom, sell at the top’ – we have all heard this seemingly simple advice on how to make a fortune on the markets, but putting it into practice is another matter.

Despite overwhelming evidence to the contrary, many retail investors believe that such market timing is possible. After over a decade of equity bull markets on both sides of the Atlantic, that misplaced belief is now prompting potential investors to stick with their deposit accounts, biding their time, despite miserably low interest rates.

Such a strategy has been failing for years – one reason why the current US bull market has been labelled ‘the most hated bull market in history’. Peter Lynch, an influential mutual fund manager in America, summed it up neatly when talking in a different era: “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.”

Given the near impossibility of perfect timing, the theoretical investment approach is simple: take the leap and fully invest at day one.

Over the long term, the trend of markets is generally upwards, so the earlier an investment is made, the better. Research supports the idea: taking a look over many decades at UK, US and Australian stock markets, analysts concluded that on about two-thirds of occasions, a one-off investment at day one produced a better return than investment phased evenly over the following 12 months. The average differences in gains were 2.39% (US), 2.03% (UK), and 1.45% (Australia).

Case Closed?

Is that the case closed? As you will have experienced with real world clients, for many the answer is no. For a start, if two-thirds of the results are better, then one-third are not. Secondly, the fact that the one-off approach wins overall by about 2% has a direct relationship to risk, particularly in markets prone to bouts of volatility (notably the UK and US of late).

The chance of the one-off investment occurring before a market decline is what has kept retail cash piling up on the sidelines. Behavioural finance offers an explanation in terms of loss aversion: pound for pound, the pain of a loss is twice the pleasure of a gain according to research, all of which takes us back to the phased investment option.

For the more risk-averse investor, the possible downside of a marginally lower return from a phased investment than a one-off investment comes with four important upsides.

  • The chances of making a single investment at the wrong time are reduced;
  • They are investing in the markets, which they otherwise might not do;
  • Taking the plunge ensures tax allowances are secured regardless of how markets are behaving;
  • and They are benefiting from pound cost averaging.

Pound cost averaging is usually thought of with reference to regular savings plans but is equally relevant to the phased investment approach. The advantage of pound cost averaging is that if a fixed sum is invested regularly (typically each month), then more units/shares are bought when the price is low than when it is high. The net result being sought is that, at the end of the investment period, the average price paid is less than the average price across each of the buying days.

Phasing In

Putting phased investment into practice is relatively easy for your clients, though it is to some degree dependent on your preferred platform (some do not offer an automated solution). The points to consider are:

  • Can you choose the term for phasing? This is important as every client has different needs and ideas. You may need to be specific if you are thinking of ISA or pension tax year investment limits;
  • Is there the option of a different phasing period and to phase into another fund selection for different wrappers?;
  • Is there a manual override? Sudden sharp market movements might point to a change of approach; and
  • Are there any additional charges or cash management constraints for phasing?

For some clients an automated, smoothed system of investment may be the deciding factor when neither of the other options – one-off investment or 1% deposit interest – holds great appeal.

An Example

Assume that £1,000 is invested in the FTSE All-Share index on the last business day of each month from 28 September 2018 to 30 August 2019. The results are depicted in the table.

This example favours the phased approach, albeit the difference between the average purchase price and average index on the 12 buying days is small, because the market was relatively stable in 2019. Often the examples provided to demonstrate pound cost averaging use unrealistically high volatility to emphasise the benefits of the approach.


Another example highlights one of the occasions when phasing would have produced a better result. Ignoring reinvested income, £12,000 invested on 28 September 2018 would be worth £11,807 at 30 September 2019 but phasing £1,000 a month for 12 months produces £12,364.

Adjusting for dividend and interest income would bring the numbers closer together (dividend yields are higher than cash returns), but again favour the phased approach. And the more risk averse investor would also have had fewer sleepless night amid the stock market sell-off in December 2018 (see line chart) having invested only a quarter of their £12,000 rather than the entire amount.

Phased-investing-Market dips

For clients easily spooked by market volatility – or maybe those investing for shorter time frames – phased investing may help to allay some of their concerns.