3rd Pillar lump sum or periodic investing

Hello everyone, what is your strategy when contributing to your 3rd pillar? Do you do invest the max amount at the beginning of the year or do you contribute e.g. monthly?

For me personally, I contribute monthly. What is your strategy and why?

Thanks for the discussion :slightly_smiling_face:

Hi Diogo.

I contribute monthly but it’s only because my salary arrives monthly too and it’s easier that way.

In the long term it doesn’t make a big difference to invest yearly or annually.

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Agreed, annually or yearly won’t make much of a difference :wink:

I do invest monthly what I can save from my salary. One of my monthly investment is made to my 3rd pillar instead of buying my usual ETFs, usually at the beginning of the year.

Keep in mind that:

  • Time in the market is better than timing the market. Short term fluctuations can be smoothed out by dollar-cost averaging (DCA), e.g., with weekly investments (especially when you do not pay the additional fees of buying in multiple times as with all inclusive fee as for most, if not all, 3rd pillar providers)
  • The dividends season in CH is spring/early summer. So if your portfolio is biased towards Swiss equities (as it is often the case with 3rd pillars), investing early in the year may be better. Plus, dividends in your 3rd pillar are tax-free, while dividends on your private portfolio are taxed as additional income.
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Hi anneaun and welcome!

When dividends are paid out, the share price declines by approx. the same amount. It doesn’t really matter when you buy the shares.

Totally agree on time in the market > timing the market.

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We invest all at the beginning of the year as we make sure to max out our pilar 3a. Anything we save after this investment then goes into our other investments. Then our thirteenth paycheck is saved for the pilar 3a investment in the coming year.

Finpension once published an article on when would be the best time to pay into the 3rd pillar: When to pay into pillar 3a, at the beginning or end of the year? – finpension

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Monthly is preferrable to annually in terms of unit cost averaging. Also, paying in monthly gives you flexibility in that you have the option of making larger payments (the remainder of your annual allowance, for example) at times when the market offers major discounts.

This is more important for self-employed people because of the much larger pillar 3a contribution allowance. But over the long term the difference can be significant for employees as well.

I switched to monthly contributing 1/12 of the total, so cost averaging. But I’m sure there is some good papers on dollar cost average vs. lump sum investment at beginning of period, so maybe someone has a couple links to read.

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Whenever the topic comes up, I always think of this classic Vanguard paper:

From the Executive Summary:


In this paper, we compare the historical performance of dollar-cost averaging (DCA) with lump-sum investing (LSI) across three markets: the United States, the United Kingdom, and Australia. On average, we find that an LSI approach has outperformed a DCA approach approximately two-thirds of the time, even when results are adjusted for the higher volatility of a stock/bond portfolio versus cash investments. This finding is consistent with the fact that the returns of stocks and bonds exceeded that of cash over our study period in each of these markets.

We conclude that if an investor expects such trends to continue, is satisfied with his or her target asset allocation, and is comfortable with the risk/return characteristics of each strategy, the prudent action is investing the lump sum immediately to gain exposure to the markets as soon as possible. But if the investor is primarily concerned with minimizing downside risk and potential feelings of regret (resulting from lump-sum investing immediately before a market downturn), then DCA may be of use."


In short, it has been slightly better (historically and on average) to invest the lump sum as soon as possible rather than to use DCA, but the psychological factors, which are different for every investor, should not be ignored.

Here’s another article that summarizes these various aspects (financial and psychological) fairly well:

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… and there is a nice overview from Ben as well:

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But we’re not comparing lump sum with DCA here (which comes up when you have a large amount of uninvested money you want to invest).

It’s just regular savings strategy and what the investment frequency should be.

I’m fairly sure there’s no long term difference between monthly/quarterly/annually. It’s more a matter of cash flow/preference.

Just do what’s convenient for you.

I agree that the original question wasn’t formulated exactly like that (i.e. lump sum vs DCA), but the OP asked:

Isn’t it exactly the same?

This is also what the finpension article linked above is addressing, e.g. “Much more important than the time of investment is the fact that one pays into the pillar 3a at all and invests the money. But, if you have the financial opportunity, you should always invest in pillar 3a at the beginning of the year.”

Of course if one doesn’t have the money before the end of the year or the semester, etc., that’s different.

Yeah, doesn’t the old adage say “it’s not about timing the market, but about time in the market” ? :sunglasses:

It’s the same if all our investing is done in 3a (+2nd pillar +potential own home).

It starts to differ if we invest more than the 3a cap and would have invested the money in financial assets anyway, in a taxable account, and are pondering when is the best time to do our 3a contributions. In that case:

  • the tax advantage of putting money in the 3a is fixed no matter when it’s done within the year.

  • dividends are part of total returns. In a 3a, they’ll only be taxed when the 3a account is retrieved, and at a lower rate. They’ll be subject to witholding tax (so deferred access to them for us) in taxable, along with regular taxes. Capital gains are actually taxed in 3a, when we retrieve the funds, though at a lower rate.

  • fees differ between taxable and 3a solutions. 3a should be slightly more expensive. For VIAC, Frankly and Finpension, they’re some variation of a .% of (invested) assets under management, taxable investments can have different fee structures.

  • the products available for investing are different between 3a and taxable products.

My own intuitive take (I have made no calculation or informed comparison) is to delay contributing to 3a and first add to taxable, provided I am certain I’ll have the money available when the time for investing into 3a comes. A case could be made for contributing to 3a before dividends season, or according to our asset allocation if we use 3a tax shielding for the more tax subject parts of our portfolio (see the excellent analysis by @Dr.PI here: Splitting the world).

Though good arguments can be made for simple and easy set and forget automatic monthly contributions.

I’m doing a small experiment with my 3a. I pay 4 times per year 1/4 of the total allowance into 4 different portfolios ans see if there will be any differences after some years. Since the 3a total amount us only a very small sum for me in terms of investment the performance is not that relevant.

However with my other savings (especially bonus) I invest immediately.

Hey, why not trying to invest one fourth of the full amount deductible at the beginning of the year in one 3a account to compare the performance of the quarterly 3a ?