Do you want to know does the market timing concept work? Is there any empirical evidence that proves mutual funds have historically performed better on some days of the week than others? Read on to learn which day of the week is the best day to buy mutual funds.
This topic of when to buy stocks or mutual funds came up when I have a discussion with a friend whom I successfully introduced to the world of passive investing via index funds. He wanted to know what is the best day of the week to buy mutual funds? Obviously, the best day to buy mutual funds is when the price is low. But which day of the week?
Is Monday the Best Day of the Week to Buy Mutual Funds?
Historically, some of the world’s worst market crashes occurred on Monday. You probably heard about Black Monday when the world’s stock markets crashed spectacularly and shredded tremendous values in a very short time. Also, there’s more chance some bad news happens during the weekends so in theory there would be more minor crashes on Monday for you to get into the stock markets and buy your mutual funds at a lower price. So if you have to pick a day to buy mutual funds, would Monday is the best choice?
Well, there’s more chance some bad news happens during the weekend but there’s also more chance some good news takes place. Hence that effect cancels out.
If indeed the major stock market crashes always happen on Mondays, then it would be wise to always buy low after the crashes. But no human can predict when the major crashes occur and bad news happens randomly on any given day of the week, so there’s no point in timing your mutual fund buying on Monday.
Is Tuesday or Wednesday the Best Day of the Week to Buy Mutual Funds?
If Tuesday occurs right before the 15th or 30th of each month, should you buy in before other people get paid and part of their salaries go into their 401(k) mutual funds? The argument for investing your money on Tuesday before the 15th or 30th of each month is that it’s better to buy before other people putting more money into mutual funds rather than after. Hence you can catch a little uptick when there’s a net inflow into mutual funds.
But in reality if you try to time a day earlier to take advantage of this effect, there will be countless of other professional traders who will buy two days before you so there’s absolutely no advantage to buy mutual buys before other people’s money starts pouring in during paydays.
As for Wednesday, in some random year the stocks gain more in value compared to other days of the week. But there’s absolutely no reason to think Wednesdays will continue to outperform in subsequent years. By now all the quantitative analysts (quants) and high frequency traders have studied any small variance in returns for what day of the week to buy or to sell stocks and mutual funds. If there really was a better day to buy funds, someone would arbitrage that opportunity and it would go away.
Is Thursday or Friday the Best Day of the Week to Buy Mutual Funds?
Since 401(k) plans often invest investors’ money on Thursday and Fridays, you would think that the stock market might perform better on Thursday and Friday. That means should you avoid buying high on Thursday and Friday?
Also some traders might want to close out their positions by Friday to avoid the exposure to unnecessary and untradeable risk over the weekend. Would you do your own price history research to see if there’s any pattern to take advantage before the weekend?
These types of pricing abnormality have been arbitraged out of the market already. There are quantitative hedge funds that employed many PhD quants to search for these types of patterns constantly in the search for a quick profit. They look for reoccurring patterns and relationships in the prices of different mutual funds and act on it when their model tells them there is a miss-pricing. So it’s useless for anyone to determine whether Thursday or Friday is the best day of the week to buy mutual funds or not.
So What Day of the Week Should You Buy Mutual Funds?
Asking what day of the week to buy mutual funds is like asking when to get into the stock market. Nobody can predict the future but there are only five possible answers. While some days may outperform others periodically, there’s really nothing to attribute this to, other than chance. So your best bet is to buy mutual funds today.
The argument for “the best time to buy mutual funds is now” also makes sense if you expect the mutual funds and the stocks to increase a little on average every day. Buying as early as possible is much better strategy than trying to timing which day of the week to buy mutual funds.
Additionally, you cannot market time which day to buy mutual funds but you can avoid buying some dividend-paying funds right before they distribute their capital gains, especially when a large annual dividend is to be declared within a month.
In particular, it’s often advisable to avoid buying mutual fund shares shortly before the fund pays its year-end dividend. The dividend doesn’t make you any richer, because the value of the fund goes down by the amount of the dividend. But you still have to pay tax on the dividend.
Investing is all about buying and holding for the long term. There is no statistical advantage of choosing one day versus another in a week. Over time your choice of when to buy mutual funds is completely irrelevant. So if you have money to invest in mutual funds, pick a day, any day of the week.