Which one of the following risks is Jackie, who saves monthly in a unit-linked savings plan, less exposed to than Mark, who is going to invest a lump sum in the same unit fund?

• A. Inflation
• B. Timing
• C. Counterparty
• D. Interest rate

Answer: (B)

The main idea here is market timing risk. By saving monthly into a unit-linked plan, Jackie uses a form of dollar-cost averaging, buying units at different prices over time. This smooths out the impact of any single, potentially unlucky entry point and reduces the possibility that a big portion of money is invested right before a market drop. Mark, by investing a lump sum, faces the risk that he puts all his money in just before the market falls, so his initial investment could drop in value more than Jackie’s would.

Inflation risk, counterparty risk, and interest rate risk remain present for both investors and aren’t reduced merely by spreading out contributions, especially since they’re in the same unit fund.