Do you save through insurance via Branch 23? Then paying in monthly is a good idea
3 min read
Paying into your insurance policy monthly can be more advantageous than paying quarterly or annually. This is what we call DCA in investor jargon. DCA or Dollar Cost Averaging is a strategy where savings are built up by investing equal sums of money at regular intervals, regardless of the price of the underlying fund or what happens on the financial markets. DCA'ing has the advantage that, thanks to the volatility of the market, you can achieve a higher return than if you were to, for example, pay the premium annually.
> The advantage of regular monthly payments (or DCA'ing) is that you can expect a higher return and that it removes emotional factors. You invest in a steady manner, sometimes you buy your fund cheaply, other times you buy your fund a bit more expensively. Moreover, it enables investors to build up a nice position in one or more funds over a long period with relatively small amounts. In short: DCA and chill!
Why pay in monthly (or DCA)?
An example makes a lot clear. Suppose you invest 100 EUR every month for one year in a Branch 23 fund. We disregard taxes or costs. Then for this 100 euro you receive a different number of units in the fund each month, since the fund's price changes from month to month. Let's take an example of a fund that reaches an equal price in both January and December of that one year. Actually, you could consider this a fund that did not perform well over that year. You will see that we arrive at surprising results...
The table below illustrates this:
In this case you have invested 1.200 euro, and after one year you have 1300,55 euro reserve in the policy. Your reserve is therefore 8.38% higher than what you paid for it. Despite the fact that this is supposedly a "bad" fund.
Suppose you had instead chosen to pay a single premium in January of that year, then your table would have looked somewhat different:
In this case you have invested 1.200 euro, and after one year... you have 1.200 euro reserve in the policy. Your return is indeed equal to zero in this case.
"Time the market" versus "DCA"
Some investment experts emphasize that using "DCA" can nevertheless result in a lower return compared to a one time investment made at the right moment. The argument here is that stock markets tend to rise over time. By holding back money, large gains can be missed. This naturally means that as an investor you also need to be actively looking for the right entry moment. Moreover, timing the market is much less straightforward with an insurance product than with certain banking products. An insurance policy is, after all, a contract. Every change in investment requires a contract to be drawn up, or amended.
In other words: Life Experts is a good place for you if you are a proponent of regular monthly payments.
In which policy can I DCA?
This is possible in every policy where Branch 23 can be included as an investment form. This is certainly the case for an IPT (an individual pension commitment funded by your company), a Pension Savings or Long Term Savings plan, a POZ (the pension agreement for the self-employed without a company), and of course also in the case of non fiscal investment insurance. Importantly, group insurance policies for staff members that are underwritten in Branch 23 will, out of caution, always follow DCA (retained bonus plans).
Disclaimer: The information in this article is not written for advisory purposes and is likewise not intended to recommend investments. Investing involves risks. You may lose (part of) your investment. We advise you to invest only in financial instruments that match your knowledge and experience. Discuss your situation with our experts, and always take an online profile test beforehand, this only takes 6 minutes and helps us better assess your situation.
Questions about your own situation?
This article is general information. Your adviser will look at what it means for you.