I was doing a pension review for a couple recently. Going through the figures for their pensions, something wasn’t right. More money had been paid into Aisling’s pension, but Ben’s pension was worth more. They are invested in the same fund. So I had to investigate.
We had transferred their benefits to a PRSA in 2023, so I didn’t have to go back that far. The initial transfer payment into Ben’s PRSA in 2023 was significantly higher than Aisling’s. There were higher subsequent payments to Aisling’s pension than Ben’s. Ben’s PRSA was set up a week earlier than Aisling’s. During that time, the stock market did very well and the annualised return of Ben’s initial investment to date is 40% compared to 34% for Aisling. Having more money invested for longer was the simple answer. There were a few other things that sprung to mind.
Dollar cost averaging is making payments over a number of months instead of putting it all in in just one lump sum. People tend to do it when they are nervous about the market and that it will fall immediately after they invest their money, so they invest over time. Research has shown that 2/3 of the time, you are better off investing the lump sum in one go.
In this case, while the clients weren’t dollar cost averaging, Ben had a large lump sum invested up front. Aisling had a smaller lump sum initially and larger payments subsequently to equalise the total payments made. Ben’s larger lump sum did better.
Stock market prices tend to go up. The lowest price that they bought at was the initial purchase price. No subsequent purchase prices were cheaper. Even after Trump imposed his tariffs and caused market prices to fall, did unit costs fall below the initial unit price. While you may benefit from market timing over a few weeks or months even, sitting on the sideline in cash waiting for a crash is a mugs game and you really need a crash like 2008 to benefit.
It won’t be until after the fact that you will know if you have been lucky with timing or not. Which means that guesswork is part of your strategy. Those who invest regularly all have times when you have got lucky on investing money or cashing in at the right and wrong times. It is a part of investing. You shouldn’t have an investment strategy where you are relying on guesswork and you won’t know how big a factor it has to play in your success until after you have made the investment.
Steven Barrett
01 September 2025