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Today, I want to share a big secret with you.
Are you ready for it?
The best day to invest in the stock market is today. Yes, that’s right. If you decide to invest in the stock market, the very best day to invest is on Monday.
The Market’s Best and Worst Days of the Week
A study completed by the Journal of Economics and Finance,“The Day of the Week Effect on Stock Market Volatility”, reviewed 25 years of daily S&P 500 data. They concluded that Wednesday had the highest stock market return, with a robust 0.032% return on this day.
Wait a second. Didn’t I just claim that the best day to invest in the stock market was Monday?
Yes I did.
Are you familiar with the old adage, “Buy low and sell high”?
If you want to buy low, you shouldn’t buy on Wednesday. Instead, Monday has historically been the worst day of the week for the stock market. In fact, it’s actually the only day of the week that, on average, has had a negative return, -0.0028%. Every other day has had a positive return except for Monday.
For the life of me, I couldn’t figure out why the stock market underperformed on Mondays.
Is it a case of the Mondays, and people simply don’t want to be at work? Is the stock market hungover from a crazy weekend? Or maybe it’s something more sinister?
In my research, I found that it had less to do with the weekend and more about Friday. If you look at the news, most companies, and even politicians, typically dump bad news on Fridays, after the stock market has closed.
The thinking is that the stock market will have the whole weekend to digest the news, instead of it reacting poorly the next day when the market opens.
However, while the market does digest the bad information over the weekend, it still affects the company, and for that matter the stock market, as a whole on Monday.
So what does that mean for you?
If you’re going to buy on the dips, the only day of the week that research has shown to actually have a historical dip is Monday. Therefore, if you have the ability to dictate when you dollar-cost average your investments, the best day of the week is clearly Monday.
Best Day of the Month
Let’s say that you can’t dollar-cost average your investment. Instead, you can only lump-sum invest once a month. What day would be optimal if you were to do that?
In my research, I found that the stock market performs best towards the end of month. According to Morningstar, in the Fall 2006 issue of The Journal of Wealth Management, researchers John Paglia and Xiaoyang Jiang concluded that the best day to invest was the 23rd day of the month. They studied the stock market’s performance from Jan. 1, 1990, to Dec. 31, 2005 in order to arrive at that conclusion.
Changing When You Invest
Knowledge is power.
Therefore, you should change your investment strategy, right?
Larry Swedroe says, in The Only Guide to a Winning Investment Strategy,
“If you had invested the same amount on January 1 of every year for 30 years beginning in 1965, your return would have been 11 percent per annum. If you had been unlucky enough to have invested the same dollar amount each year on the day that the S&P 500 Index hit its peak for that year, your return would still have been 10.6 percent per annum. That is less than a 0.5 percent per annum difference in returns. And no one is that unlucky.
If, on the other hand, you were lucky enough to have chosen the market’s low for the year, each year, then your return would have only increased to 11.7 percent per annum. That is an incremental return of just over 0.5 percent per annum. And no one is that lucky. If that does not qualify as much ado about nothing, I do not know what would.”
As we know, the stock market is not going to be up every Wednesday. Similarly, the stock market isn’t going to be down every Monday. While you could potentially get slightly higher returns by investing on Mondays, I personally am not going to get too worried that my 401(k) doesn’t get deposited on Mondays. Sure, it’d be great, but I’m not going to lose sleep over it.