Investing during turbulent times with Autoinvest from Zurich

We’re all very familiar with the ago old saying – it’s time, not timing, that matters in investment markets.

The common pitfall of buying high and selling low has plagued investors for years and this is especially true after a period of strong investment growth – not unlike what investors have experienced over the last number of years. But since the beginning of the year, volatility and market turbulence has returned. While this can be great news for good active stock pickers, for the less experienced investor, it can cause paralysis. However, Autoinvest from Zurich might be the solution to this problem.

Investment paralysis despite record low interest rates

Currently there is approximately €126 billion sitting on deposit from Irish retail investors and savers. With interest rates for savers at all-time record lows there is increased demand from clients for alternatives to the traditional savings account. But the natural alternative for many (investment funds) has experienced a period of volatility which can stop investors making a decision about moving their money. I’m sure you’ve heard many clients tell you that in the current environment they’d rather leave their money on deposit until ‘the markets sort themselves out’! Now this seems to go against all investment logic but from a human nature perspective, it’s completely understandable.

When to invest?!

But when is the right time to get your customer to invest? Unfortunately, there’s no right answer. We can try to predict how markets will perform based on analysis of what’s happening in the global markets but it’s difficult give a definitive answer. These are volatile times, with investment markets subject to large swings in return. Therefore, investors are understandably apprehensive about dipping their toes in the market, with timing an investment a key consideration. Market timing can be a big dilemma, and in general retail investors have struggled with this as it requires a constant monitoring of daily events and also requires the skill to benefit from market timing. This can leave investors with the desire to become invested in markets, but don’t want to do so at a market high.

Of course, this should only be a concern for lump sum investors. Regular savers and investors can benefit from ‘unit cost averaging’ so a period of market volatility can actually be seen in a positive light.

Autoinvest - unit cost averaging for lump sum investors

A phased investment strategy, where you drip-feed your funds into the market over a period of time takes advantage of a concept often referred to as ‘unit cost averaging’. This involves buying the same euro amount of a particular investment, at set intervals over a period of time. In general, more units of a fund are bought when the price is lower and fewer units are bought at times where the price is high. Over time an average price emerges, which will help reduce volatility. When markets have moved up in a straight line, lump sum investing is more beneficial for the client, and this has been the general market experience in recent years. However, this has not continued into 2022 and the concept of unit cost averaging really comes into its own in markets that are falling or are experiencing volatility.

But what if lump sum investors could benefit from the concept of unit cost averaging? Zurich’s ‘autoinvest’ strategy for investment bonds allows you to ‘drip-feed’ or ‘phase’ a lump sum investment into the clients’ chosen funds over a period of 6 or 12 months – thus potentially benefiting from unit cost averaging.

Autoinvest can solve the behavioural argument for customers

Cautious investors, from a behavioural perspective, don’t necessarily concern themselves with getting the best possible return, but more with avoiding the worst possible return. As shown in the well-established concept of loss aversion - people tend to strongly prefer avoiding losses to acquiring gains. The peace of mind that can accompany drip feed investing with Autoinvest can be a powerful tool. Customers who have a lump sum to invest are often fearful that if they invest all of it today, this could be the height of the market and should markets fall it may take time to recoup their original investment (hence why so many people remain invested in cash).

If markets go up for another day they feel the market is gone too high and they missed their chance yesterday. If markets fall they feel it’s the start of a bear market. This fear leads to the paralysis and inertia we see with investors today and no investment decision is made.

Autoinvest from Zurich could reverse this course. Unit cost averaging can be the entry point for the cautious or fearful investor. This drip feed approach will help you to reframe the conversation for clients who are making the first steps off deposit, and who want to gradually invest, rather than a full dive. Ultimately instilling this sense of investment discipline removes some of the ambiguity and uncertainty whilst gaining exposure to investment markets.

The solution for lump sum investors

Autoinvest is available on the Zurich Investment Bond. For more information:

Zurich Life Assurance plc is regulated by the Central Bank of Ireland.