When someone has capital to invest, they often face a choice: invest everything immediately or spread purchases over time through a regular investment plan (PAC)? The question seems simple, but actually brings together two different problems. On one side is the financial question of how long to keep capital invested; on the other is the psychological concern of entering the market at an unfavourable moment and seeing the investment fall immediately afterwards.
Regular investing and lump-sum investing should therefore not be treated as absolutely competing strategies. Both can be rational, but they address different needs. The Bank of Italy distinguishes between a PIC, a lump-sum investment plan (Piano di investimento di capitale), in which capital is invested all at once, and a PAC, a regular investment plan (Piano di accumulo del capitale), in which investments are made gradually at predetermined intervals. It also emphasises that risks depend primarily on the instruments purchased: an equity PAC remains an equity investment and does not become cautious simply because purchases are spread over time.
The first distinction: do you already have the capital, or are you building it over time?
This is probably the most important distinction in the entire comparison. Imagine two people. The first already has 60,000 euros earmarked for a long-term investment today. The second does not have 60,000 euros, but can save 500 euros a month from their salary. Both might say they want to use a PAC, but financially they face completely different problems.
For the second person, the PAC does not necessarily represent a choice between investing today and tomorrow: the future capital simply does not exist yet. Each month, newly available savings are invested. In this case, the regular investment plan is primarily an organisational tool that turns regular saving into regular investing.
The first person, by contrast, already owns all the capital. Deciding to invest 5,000 euros a month for twelve months means deliberately keeping some money out of the market during that period. This is where the real comparison between lump-sum investing and gradual entry arises.
Confusing these two situations often leads to incorrect conclusions.
What is a PAC?
A PAC involves investing sums at regular intervals, for example monthly or quarterly. The Bank of Italy describes it as investing “in instalments”: rather than committing the entire capital at once, several investments are made over time.
Imagine investing 500 euros each month for ten years. With no returns, total contributions would be:
The final investment outcome will then depend on how the instruments purchased perform over those ten years. Since each instalment is invested at a different price, the same 500 euros buys more units when the market is lower and fewer when prices are high.
This produces an average purchase price spread over time.
A PAC reduces the risk of investing everything at the worst moment
One of the main advantages of a PAC is precisely diversification over time. The Bank of Italy observes that investing at different times reduces the risk of committing all the capital when prices are particularly high: purchases are made at different prices, and the final average cost reflects all these entries.
Suppose we have 12,000 euros and decide to invest 1,000 each month. If the market falls by 20% immediately after the first purchase, only a small proportion of the total capital will have been invested before the decline. Subsequent instalments will instead buy units at lower prices.
If we had invested all 12,000 euros the day before the decline, the entire capital would immediately have been exposed to the fall.
This does not mean a PAC prevents losses. If the market continues to fall for years, the plan can also show a loss. It simply means it reduces dependence on the entry price of a single day.
But reducing entry risk has a cost
If the capital is already available, investing gradually means some of it remains outside the market. If markets rise during that period, the money not yet invested does not benefit from that growth.
The Bank of Italy highlights precisely this disadvantage: when the savings to invest are already available, spreading entry means leaving part of the capital in an account or in generally lower-return instruments for a time.
Consider a highly simplified example. Someone has 24,000 euros and can choose between investing immediately or investing 2,000 a month for twelve months. If the market rose steadily throughout the year, the lump-sum investor would have had the entire capital exposed to growth from the outset. The PAC investor would only have invested the final 2,000 euros at the end of the year, missing almost the entire rise on that portion.
A PAC therefore offers greater protection against entry immediately followed by a decline, but underperforms lump-sum investing when the market rises during the accumulation period.
There is no way to obtain both advantages simultaneously.
Investing immediately maximises time in the market
If capital is intended for a long-term investment and invested immediately, every euro starts its compounding period at once. This connects directly with compound interest: the longer capital remains invested and returns are reinvested, the more time returns have to generate further returns.
Gradually investing capital already available instead means some amounts have less time to compound.
Suppose, for example, that 12,000 euros are available on 1 January. With a lump-sum investment, the entire amount remains invested for twelve months. With a PAC of 1,000 euros per month, the first instalment stays invested for almost a year, but the last enters the market only in December.
On average, the capital is therefore exposed to the market for a shorter period.
This is the true structural advantage of lump-sum investing: more time with the capital invested. It does not mean it will certainly produce a better outcome in every period, because an immediate downturn could favour the PAC. It simply means that if an investment has a positive expected long-term return, deliberately delaying part of the entry sacrifices some of that expected exposure.
A PAC also addresses a psychological problem
Personal finance is not only about expected returns. It is also about people who may become frightened, change their minds or sell during a crisis.
The Bank of Italy identifies two behavioural advantages of a PAC: automating the plan can reduce the likelihood of fear and euphoria continually influencing decisions, and it can act as a form of disciplined saving.
This can be very important. Imagine someone with 50,000 euros who rationally wants to invest for twenty years but knows that a 20% loss in the first few weeks would probably lead them to sell everything. From a purely theoretical perspective, investing immediately might make sense, but a strategy that is perfect on paper becomes useless if the investor cannot stick with it.
Spreading entry over six or twelve months could reduce initial anxiety and make the investment psychologically easier to tolerate. In this case, the PAC does more than change the average purchase price: it helps build a strategy the investor can genuinely follow.
Behavioural risk is a real risk
Suppose someone invests all their capital and the market falls by 10% the next day. Rationally, if the horizon is twenty years and the objectives have not changed, that initial loss need not necessarily change the strategy. Psychologically, however, seeing tens of thousands of euros shrink immediately after an important decision can be very difficult.
The feeling of having chosen “the wrong moment” may emerge, along with the temptation to sell and wait for better conditions.
But when would the better moment be?
After another 10% decline? After the recovery? When economic news is positive? When interest rates fall?
Trying to find the perfect moment can easily turn into market timing, meaning an attempt to predict short-term market movements. A PAC at least partly removes this decision: purchase amounts and frequency are established in advance, and investing continues regardless of daily movements.
A PAC does not guarantee a better price
The statement that a PAC allows purchases “at average prices” is sometimes turned into a claim that it automatically enables buying at better prices.
That is incorrect.
If the market falls throughout the accumulation period, later instalments will indeed buy at lower prices than earlier ones. But if the market rises steadily, every subsequent instalment will buy at a higher price.
Imagine an investment whose price moves from 100 to 110, then 120, 130 and 140. A PAC will gradually buy at all these prices. A lump-sum investment would instead have bought everything at 100.
Conversely, if the price moved from 100 to 90, 80, 70 and 60, the PAC would progressively benefit from lower prices, while the lump-sum investment would have entered entirely at 100.
A PAC therefore does not eliminate market risk or guarantee a higher return. It spreads the risk associated with entry timing.
An equity PAC remains an equity investment
This point is particularly important. A PAC is sometimes perceived as a cautious way of investing, but the level of risk depends primarily on the instruments purchased.
The Bank of Italy clarifies that PIC and PAC approaches can be used with the same instruments, and that risks and expected returns derive mainly from the underlying assets. A PAC invested entirely in equities can be much riskier than a lump-sum investment in short-term bonds.
The choice between a PAC and lump-sum investing therefore comes after the choice of asset allocation.
First, ask: what am I buying? Shares? Bonds? A mixed portfolio? With what time horizon and what ability to tolerate losses?
Only afterwards does it make sense to decide how to spread purchases.
Watch the costs of PACs
Making many purchases can increase costs. The Bank of Italy draws attention both to fixed costs associated with individual instalments and to possible PAC entry fees, which some products may even front-load into the first instalments. In this case, stopping the plan early can make the cost incurred very high relative to the capital actually invested.
The issue can also arise with a simple self-managed ETF investment plan.
Suppose the broker charges 5 euros per purchase. With a monthly instalment of 100 euros, you would pay:
just to execute the transaction.
On an instalment of 1,000 euros, the same cost would instead represent 0.5%.
The cost of each transaction must therefore be assessed relative to the amount invested. Many intermediaries offer automatic regular investment plans at very low or zero cost on certain instruments, but the terms must be checked case by case.
An automatic investment plan and a PAC product are not necessarily the same
Another distinction is useful. “Running a PAC” may simply mean independently buying the same ETF or portfolio every month. But it may also mean subscribing to a specific financial product sold by a bank or intermediary, with its own contractual plan and fee structure.
In the second case, the documentation must be read carefully. The Bank of Italy highlights that some PACs may include opening costs, instalment charges and entry fees, in addition, naturally, to the underlying product’s usual management fees.
The benefit of a PAC’s discipline must therefore not become an excuse to ignore its costs.
A PAC is particularly natural when investing salary income
Return to the person who earns income each month and wants to allocate part of it to investments. In this case, there is no initial capital to compare with a lump-sum investment.
If 300 euros are saved each month, investing those 300 euros as soon as they become available simply means investing capital as it is generated.
Waiting twelve months to accumulate 3,600 euros and invest it all at once would instead mean deliberately leaving the first instalments idle for several months.
In this situation, a PAC can almost be considered a natural consequence of how savings are generated: monthly income, monthly saving, monthly investing.
That is very different from already having 100,000 euros and deciding to spread entry over thirty instalments.
What if I suddenly receive a large amount?
The question becomes interesting when capital arrives all at once. This can happen after selling a property, receiving an inheritance or a severance payment, or simply after many years of saving in cash.
Suppose you receive 100,000 euros that will not be needed for at least fifteen years. The extreme alternatives might be:
invest all 100,000 euros immediately, or invest 5,000 euros each month for twenty months.
The first choice immediately exposes all the wealth to the market. The second substantially reduces the risk of concentrating entry on a single date, but keeps a very significant share of the capital outside the investment for many months.
There are, of course, infinitely many intermediate solutions: dividing the capital into three, six or twelve entries, or investing some immediately and spreading the remainder.
There is no universally correct PAC duration. The longer the entry period, the less dependence on the initial price, but the longer some capital remains out of the market.
The choice also depends on the psychological scale of a loss
Imagine two people, each with 100,000 euros.
The first finds it entirely tolerable to see their wealth temporarily fall to 75,000 euros because they have a very long horizon, a separate emergency fund and understand their investment’s volatility.
The second, despite having the same wealth and the same theoretical time horizon, knows that a loss of 25,000 euros would probably cause panic.
Mathematically, they may seem identical. Financially, they are not.
A strategy that completely ignores investor behaviour can fail even if it was theoretically efficient.
A PAC can therefore be used as a tool for managing behavioural risk, provided it is not confused with a guarantee against losses.
Be careful not to extend the PAC indefinitely
There is also the opposite risk. Someone may be afraid to invest everything and start a PAC, then keep postponing because each month brings a new reason to fear a correction.
In this way, an entry plan can simply become disguised market timing.
If you choose to spread the investment of capital already available, it is useful to establish duration, frequency and amounts beforehand. For example: twelve identical monthly purchases, regardless of what the market does.
Otherwise, you risk investing when markets rise for fear of “missing out”, and suspending the plan when markets fall, precisely when instalments buy at lower prices.
A PAC and lump-sum investing can coexist
The two strategies do not necessarily have to be alternatives.
Someone can, for example, invest 50% of the capital immediately and spread the remaining 50% over the next six months. Or they can immediately invest the capital allocated to less volatile instruments and gradually enter the equity component.
These hybrid solutions have no particular mathematical superiority: their main purpose is to balance immediate exposure with management of perceived risk.
What matters is that the structure follows a rationale established in advance and is not continually changed in response to the news.
The fundamental question remains what you are buying
As with ETFs, focusing exclusively on the entry method can distract from the most important question.
A ten-year PAC into an extremely concentrated investment remains an extremely concentrated investment. Immediate entry into a broadly diversified portfolio may have a very different risk profile.
The main decision therefore remains:
Only afterwards comes:
PAC or lump-sum investing?
The Bank of Italy explicitly stresses this logical order: first assess the type of investment, and only then the method of contributing capital.
A complete example
Imagine a 30-year-old with 30,000 euros earmarked for an investment lasting at least twenty years and an emergency fund already set aside separately.
They can choose to invest the 30,000 euros immediately or 2,500 euros each month for twelve months.
If the market rises substantially during that year, the lump-sum investment will benefit from growth on the entire capital. The PAC will gradually enter at progressively higher prices and will therefore tend to produce a lower result.
If, instead, the market falls sharply in the first few months, the PIC will immediately suffer the loss on the entire capital, while the PAC will use most subsequent instalments to buy at lower prices.
No one knows in advance which of the two scenarios will occur.
The choice therefore cannot rest on an ability to predict the market’s next move. It must be based on the investment’s structure and the investor’s ability to tolerate the different consequences.
Conclusion
Regular investing and lump-sum investing address different problems.
If the capital does not yet exist and is gradually generated through monthly saving, a PAC is often simply the natural way to invest each newly available amount.
If the capital is already available, the choice becomes more complex. Investing immediately maximises the time the capital remains exposed to the market. Spreading entries instead reduces the risk of investing everything on a particularly unfavourable date and can make sticking with the strategy psychologically easier.
A PAC does not guarantee better returns or eliminate losses. Lump-sum investing does not guarantee entry at a favourable moment.
The right question is therefore not:
“PAC or lump-sum investing: which earns more?”
But rather:
“Is the capital already available? How much risk can I bear? How concerned am I about a loss immediately after entry? And which strategy could I genuinely maintain without changing it at the first market fluctuation?”
The entry method matters. But it remains secondary to the choice of instruments, diversification, costs and time horizon.
Because a good PAC applied to the wrong investment remains the wrong investment.