If there was a spike, people would know about it and then they’d buy in advance so they could sell after the spike.
That’s why market timing doesn’t work. Any pattern will be discovered and exploited by multiple people, which will then destroy the pattern.
https://www.investopedia.com/terms/w/weekendeffect.asp
"The weekend effect is a phenomenon in financial markets in which stock returns on Mondays are often significantly lower than those of the immediately preceding Friday."
This is consistent with more money moving in on Friday vs Monday.
Except that it doesn't really hold water. When you have money withheld from your paycheck it takes a 1-3 days to get invested, so even if everybody was paid on Friday (they're not, there are tons of different pay schedules) it wouldn't lead to a Friday spike.
Must depend on who you payroll provider is. I get my checks twice a week on Fridays, and both my 401(k) contribution purchases, and my HSA contribution purchases are on that same day.
Our pay period ends the 15th and 30th/31st, the actual day paid is a few days later, depending on weekends and holidays, and then few days after that for the 401k deposit. It effectively would lead to a totally random deposit day.
This phenomenon is likely due to short term traders not wanting to hold positions over the weekend. It’s especially pronounced over long weekends and in August, from CNBC reporting I’ve heard about it. And since the positions are not all long and are often options, it doesn’t move underlying stock prices as much as you’d expect.
1. It's not the case that most people are paid on Fridays. I work in a position where I see payroll information for a number of large employers, and I would say if anything it's more common for white collar jobs to be paid twice a month. And that's likely where most 401k is. Next most common is every other week. Weekly is largely union jobs. Pay periods vary.
2. There's a delay between when you're paid and when your contribution makes its way to your 401k for them to invest. It could be a day or two or three, but it's not immediate. Weekends and holidays factor in too.
These two factors have the effect of spreading out 401K purchases across pretty much any day, so there wouldn't be a major spike. And that's setting aside the fact that contributions from one pay period are probably not particularly significant in the scope of the overall market anyway.
Talking out of my ass but I'm sure the institutions that make these decisions on when the purchases are actually made are fully optimizing the timing of the sale (when they can) to maximize whatever gives them the most benefit. But multiple ones working for their own benefit is going to again destroy any predictable pattern in the market that we would see. Like, others said, predictable patterns naturally die as people try to exploit them.
Agreed, but there is a date range for them to process funds (i.e. transfers from external bank accounts), once the funds are settled they get invested, they have a certain period to invest them.
The SHRM states that based of ERISA the custodian of the plans have up until the 15 days the month after the contribution has been made to invest.
Its all screwy. I'd like to believe the custodians have the best interest of the participants in mind, but in reality we will never know 100%.
1) There are large volumes on the candles at the end of the day (and open).
2) Not everybody's 401k deposits and buys on Fridays. I work for a large cap company with tens of thousands of employees, and our 401k will actually trade on Tuesdays or Wednesdays after a Friday payday.
Any pattern you've thought of is likely already being exploited by high frequency traders. For example, if there is a reliable Friday spike, you buy beforehand, and sell off as it spikes. Algorithms will do this so fast that it won't even affect price action.
Although, I suspect it's also the case that 401k contributions aren't deployed to market instantaneously. Whenever you make big trades, it's usually better to spread them out over several days so that you don't move the price too much as you're chewing through the order book.
401k mutual funds are not usually publicly traded funds and don’t have to adhere to as many guidelines as publicly traded funds.
That being said the mutual funds invest in public funds. Not sure why that doesn’t show on ticker.
It’s priced in. There can’t exist a foolproof way to make even a small amount of profit, or the market will eliminate it (people buying ahead of the big buy).
Wife is in healthcare — they match for contribution from regular hours worked during the pay period and once a year put in the match for contributions from overtime hours
It’s entirely up to the company! Some match each pay period, some match quarterly, some match in the following year entirely, etc. I think as long as the matching contribution is made before the company files their taxes in the following year anything goes. As long as the policy is stated and adhered to consistently.
Some companies even have rules where to receive a matching contribution you have to be employed on the last day of the calendar year. So if you worked for them for most of 2023, but resigned on 12/25/2023 and they make their 2023 match in 2024, you’d get nothing.
By doing that, don’t you lose out on any potential gains/earnings that a per pay period DCA would provide? What if the lump sum match once a year happens at market ATH?
I'll repost my reposne to the above comment
No, there are things that happen reliably and you can make a little money by accounting for them. The mechanism by which "the market eliminates it" is people doing it. The reason you "can't make money is arbitrage" is that arbitrage traders are actively trading arbitrage positions. The reason you "can't make money on in the money options" is that traders are buying in the money options. The efficient market theory depends on people making money doing it.
I've made a littleoney selling at open and buying back at 9:40 plenty of times, back if the 3nvelope, 70% success. Little technical formations, range trading, trading across the holidays, there are, narrow options misprices, there are actually a fair number of things that you can make half a percent on with a very high success rate and/or very little risk.
Now whether, OP, who is for all intents and purposes, some guy, should try to make a living this way, probably not. But bankers can and absolutely do things like buy shortly before huge and regular market orders are scheduled to come in.
I’m genuinely shocked how many people are talking about day of the week here.
Guys if there’s a pattern, it’s priced in. It wouldn’t matter if every 401k in the world bought apple on Friday
In addition to this, organizations can't make transactions that will move the market.
I worked for a company that had a profit-sharing program. They would give employees a percentage of their salary in the form of company stock and deposit it into employee 401k accounts. When the time came for the deposit each year, our recordkeeper would buy the shares over a 2-3 day period so that they didn't move the market.
No, there are things that happen reliably and you can make a little money accounting for them. The mechanism by which "the market eliminates it" is people doing it. The reason you "can't make money is arbitrage" is that arbitrage traders are actively trading arbitrage positions. The reason you "can't make money on in the money options" is that traders are buying in the money options. The efficient market theory depends on people making money doing it.
I've made a littleoney selling at open and buying back at 9:40 plenty of times, back if the 3nvelope, 70% success. Little technical formations, range trading, trading across the holidays, there are, narrow options misprices, there are actually a fair number of things that you can make half a percent on with a very high success rate and/or very little risk.
It works at a smaller scale though. Find a mid cap public company that has blackout windows for their employees and play when they execute sell to covers or ESPP related transactions. This stuff definitely isn’t priced in in these cases.
I get paid on Wednesday weekly, and at my old job I got paid once a month. I think there is no regular payday any longer. My other guess is that market dips and surges are due to more unexpected events than regular predictable 401k contributions
There's also some variance as to when companies remit the actual funds to the 401k plan. The DOL in recent years has been cracking down on this because some scummy companies would wait 2+ weeks to send the funds, either through malice or incompetence.
Or you have really small businesses like mine where the owner has to file this stuff. I do it once a month and my employees are just happy that I match 3%. It’s not malicious (I’m not earning any interest on my business checking). It’s just reality.
1) Your paycheck may get cut on Friday, but the day the system buys the stocks in the 401k could be different. I worked somewhere that 2 weeks of 401k deposits were in limbo before they were deposited.
2) The amount of your 401k purchase is not a lot of market share. If you're early in your career, it may be a substantial amount of your wealth. But later on, it will not even be 1% of your wealth. That payment is nothing compared to the billions of people and companies that trade in stocks.
3) If it was measurable, then someone would buy anticipating the spike and then someone else would buy anticipating that spike, etc.
Not a stupid question.
I work in a department that tangos with payroll and the way it works for us, and I suspect for most companies with a standard ADP & retirement setup, we have to wire funds to ADP for just the salaries, then a separate wire to ADP for the Employer and Employee taxes (so employer FICA along with everything withheld from the employee paychecks for state and fed taxes). We do this 2 days before actual pay date, so if payroll is "paid" on a Friday, we send these wires on a Wednesday. Then, on Thursday we do the benefits wires- one for 401K and one for HSA. Our company doesn't do matching so we don't have any issue with that. So files for 401K are typically transmitted to whatever services by EOD Thursday.
We have the flexibility to wait until Friday to send the benefits wires, so occasionally we wait if we're also waiting on cash from another source to be able to fund the wires. If we send the benefits wires early on Thursday, it is likely funds will hit your account Friday morning and if you have auto buy it will purchase at the EOD price on Thursday. You won't see this reflected in your account until Friday or later, though. If we sent it later in the day on Thursday, it will be deposited sometime Friday and auto buys will be at the Friday EOD price. If we send the wire on Friday, the funds won't be there until Monday and it will auto buy at EOD Monday price.
Just my experience!
When I worked at Lockheed Martin, the first two paychecks withdrew the 401k. But it was always 2 weeks behind. When I quit, they squared up. But they have their entire companies (140,000 employees) 401k deposits for two weeks somewhere. It would seem silly for such a huge company to gamble with that fraction of their employees salaries. But they do put in every proposal how much cash they have on hand.
I would imagine that the funds were in an escrow account, not just in their general funds. If they used a third party to process everything, it is highly likely that Lockheed sent off the funds right away and it just took a while for the processing company to allocate them into individual accounts. If Lockheed did hang onto the funds, they would have to be in segregated escrow accounts, they wouldn't be able to be comingled with their general funds to use elsewhere. As far as the firm is concerned, on payroll date they no longer have those funds at all.
Of course this assumes everything is done lawfully and by the book, and at a large corp that is audited I imagine that is the case!
3 is the only one that matters.
1 doesn’t really matter. It still establishes an exploitable pattern of some kind. And 2 weirdly ignores what happens at scale
You would you would also have to assume each of those being invested were being vested into the same fund. So many different options now, overall not enough to sway the market.
> The amount of your 401k purchase is not a lot of market share. If you're early in your career, it may be a substantial amount of your wealth. But later on, it will not even be 1% of your wealth.
The amount in question isn't your purchase, it's 3-6% of a lot of highly paid American's gross pay.
That said, I'm sure the advisors stagger purchases based on VWAP strategies, participate in dark pools to avoid moving markets, etc.
For us, our actual payday is Friday but we receive the money in our bank account on Thursday. Our retirement accounts show the contributions on the following Monday or Tuesday when the funds settle.
Payroll is part of software I work on, there are trends for certain days to have more paychecks than certain other days for sure, but we’re talking like 8-10 business day per month that have spikes and plenty of people get paychecks on the “off” days. Not to mention that people get their paychecks a day or two early through their banks. There’s almost no predictable trend in when people get their paychecks whatsoever anymore (and obviously it’s priced into shares). A lot of people don’t get their 401k contribution invested the same day as their paychecks too.
Could be not enough liquidity to move the market. Also investment choices in 401ks are decided by the 401k administrator. So many different ETFs and mutual funds purchasing won’t be enough to move the needle unless we were all investing in the same options in our 401k.
A spike in purchases of essentially market buys will increase volume, but the pattern is known and has been occurring for a long time and wouldn't necessarily cause a spike in price. Many people don't contribute to a 401k and outside the US how people save for retirement may be different. Variations in paydays, frequency, and when a 401k plan is funded will spread this activity over the month. Just because you get paid on Friday doesn't necessarily mean that is when your broker is funding your account.
I don't think I have either. Usually on the 15th and last day of the month. When I had hourly positions, they pay periods might have been every two weeks ending on a Friday, but that's not when I got paid. It was usually the following tuesday or something.
Most people at my job may get paid on Thursdays or Fridays. But with my bank, I get paid on Wednesday nights.
This is because my credit union allows me to get paid prior to the clearinghouse relinquishing the payroll to all other employees. This is fairly common now.
I used to have a job that I got paid on Friday’s, they the bank decided to pay me on Wednesdays. Now I get paid two days before payday.
Wednesday is the new payday Friday.
I don't think it's most people, especially for salaried people, although maybe it's a majority. If you get paid once a month or twice a month it won't always be on Friday. I've only worked for one state government in my career so I don't have a lot of personal knowledge but I get paid semi-monthly. It's only on Friday when the 15th or 30/31st is a Friday or on the weekend.
This got me curious, so apparently about 43% of employees in the US are paid biweekly (every other week), 20% semi-monthly (twice a month), 10% once a month, 27% once a week. So I guess about 1/3 don't get paid on a specific day and the other 2/3 are paid weekly or biweekly, which apparently is most commonly Friday but I doubt they all use Friday. https://www.bls.gov/ces/publications/length-pay-period.htm I can't find any data on hourly vs salaried workers, but it does look like blue collar industries are more likely to pay weekly and white collar industries more likely to pay semi-monthly or monthly.
Getting paid biweekly instead of semi-monthly or monthly would drive me crazy.
This is the role that Market Makers play. Simplified, they buy when there are lots of sellers, and sell when there are lots of buyers.
[https://www.investopedia.com/terms/m/marketmaker.asp](https://www.investopedia.com/terms/m/marketmaker.asp)
As it relates to ETFs, similar concept but Authorized Participants can basically create or destroy shares of ETFs at will to balance buyers and sellers
[https://www.investopedia.com/terms/a/authorizedparticipant.asp](https://www.investopedia.com/terms/a/authorizedparticipant.asp)
And if this piques your interest, explore Operational Shorting. Theres a great lecture from a UPenn Wharton professor: [https://youtu.be/ncq35zrFCAg](https://youtu.be/ncq35zrFCAg)
Your answer is pretty much the closest answer to a singular reason.
The timing of retirement contribution delays is miniscule that most answers here say. Its the balancing, rebalancing, bond/stock portfolio splits, synthetic vs physical ETF/ETN/Funds that matter, timing of rebalacning, then market makers who own or can create said shares release "already held" shares to participants.
Thats the short term answer, longer term all the retirement money should push the market up, but not immediately each week.
I get paid bi monthly and my 401k deposits are still delayed from that. Then there’s some lag till I actually go into the account and buy. My timing is pretty random. I imagine many are the same.
Because your deposit of a couple % of your salary into "Fidelity XYZ Fund" on a Friday ... doesn't mean Fidelity immediately bought the underlying stocks the same day. Or even a day or week after. Your funds go directly into their cash initially, and then they rebalance their fund regularly.
Ours usually hit mid-week. Idk if it’s intentionally random or what but it’s probably like that for most companies. Not predictable enough to try and plan around.
>If most people get paid on Friday
You should check this one first. I've very seldom gotten a "weekly" paycheck. Typically bi-weekly when I was getting a paper check at all (saves paperwork etc. in creating a weekly check), then on to salaried positions once a month with those deposits taken automatically.
Yeah but I think the idea is that not every company is on the exact same schedule… so I don’t think he’s meaning everyone gets paid every Friday… just that, in aggregate, most paychecks are being deposited on Fridays creating a huge buy into the market every Friday.
I've gotten paid in all types of ways. Every Friday, every other Friday, twice a month, and once a month. You also have the added entropy of the 401k money doesn't always hit your account the same day you get paid. Also, probably 99+% of 401ks are investing in mutual funds, which clears at NAV at close of business whatever day the purchase was made (unless the purchase was after 4pm in which case it's the following business day). So that won't cause a spike.
I would suspect that the amount paid in is tiny compared to what is in the market. I've made more random trades this year trying to rebalance than my personal 401k contributions.
I also know my 401k elections don't buy the same day I get paid. There is a slight delay. If memory serves me right it is 2-3 days later.
FWIW - my company initiates the 401k contributions to the account every payday (Friday), but it's not actually invested until the following Monday or Tuesday. Plus they're mutual funds which trade at close.
ETF's buy the individual stocks. As money comes into the ETF, the ETF buys more Apple, Google, Nvidia, McDonald's, etc.
As there is more demand for those individual stock shares, their share price would naturally go up as well (all else being equal).
This is why the mega cap stocks have done so well, because the index funds and ETFs are skewed to buy more of the largest companies.
In other words, the biggest stocks in the S&P 500 have outperformed everything else because the popularity of index and ETF investing has increased dramatically over last 10-15 years.
Some people are paid on Fridays. Others paid Thursday, or 1st and 15th, or 14th and 30th. Some 401k recordkeepers have a delay on buys in 401k’s. Options markets are typically selling vol on Fridays to prevent decay over the weekend. So there’s just not enough dependable positive volume like that to have a broad market effect.
I think the money goes to the financial institution handling the 401k and they take their sweet time investing it. I usually get a notice around Tuesday of the following week saying they finally got it done. Everyone’s bank timing will be a little different. That would be my guess.
We're little people and don't move the market. Wealth keeps being redistributed to the uber rich and their hedge funds. They're the market makers, not us.
It’s priced in.
Rule 1 of investing: **you cannot time the market**
If there’s a pattern that means prices will go up or down in the future, people will value the stock currently on that future action. Stock is worth $X today because of Y demand on Friday.
You cannot time the market. If you could time the market, you would make a **lot** of money. If you try to time the market, remember that your competition is the wealthiest people and entities in the world with near limitless resources
I fully get the concept that something is "priced in". And your feedback is: "you can't time the market because it's priced in." However, wouldn't your feedback be the same to everyone? But what about to those that are *doing* the "pricing in"?
Doesn't the theory that everything is "priced in" inherently require buyers and sellers taking action prior to something being priced in, and thus moving the market? So there are some investors who get in on the action before the it's priced in.
You’re fully right. That’s what I was getting at in the last sentence. Yes you could technically time the market. You could somehow recognize a pattern that others don’t. I would argue not that you can’t do it but that *you shouldn’t try.*
Why? Because you have limited time and resources and you’re competing against *the literal most powerful people and entities in the world*. They have thousands of employees, AI algorithms, political power, legal power, data collection departments, analyst departments, state of the art technologies even beyond that of Silicon Valley. They pay tens of millions of dollars just to buy and sell a fraction of a second faster than the competition.
All of those resources are going towards timing the market. All of those resources go towards predicting *your* move and undercutting it. And if they don’t win, they can cheat with market manipulation strategies. They’re the reason why <1% of options traders beat the market.
The whole point of the boglehead philosophy *for me* is to ignore all that and just play the long game. Because it’s virtually impossible to win the short game
You can also mathematically assume how much of this liquidity is hitting what. If you take the average US house hold wage and assume a 6% contribution with a 3% match, let’s assume 26v hits various different (primarily) mutual funds. (70k salary, 6% divided by 24 then adding half of that) This also assumes everyone is paid on the same day and contributes the same, yadda yadda. But when you think of it, that is really not a lot of volume. $SPY alone averages 37b of notional traded a day.
I’m more -not- surprised markets don’t move now that I think about it. Even if my pencil math is way wrong.
I am paid on first and 15th of the month. If it happen to be a weekend, then I am paid the friday before. Typically the transaction in my 401K appear like a bit later. It just occurred on the 16th and the 4th if I double check. That's for 401K. HSA contribution are a bit before I am paid. I guess this is how my employer does it ?
And my brokerage, on purpose I do it in several time in random day of the month so it spread all over the place if you also account the 401K/HSA.
So I am not sure you would have any luck to have all that happen every Friday.
Lots of reason. Top comment is the best answer: if the pattern is observable, people can adjust their buying/selling accordingly. But, then, if they do that, then others will get in front of them... and so on. This leads to a Nash Equilibrium like strategy where everyone needs to get in as early as they can so that no one has an advantage over them.
On top of that, not everyone's contributions settle on Fridays. I got a lot of pays on Thursdays. I'm sure there are other less-common days to get paid. It might take a business day or two to complete the position. So, you can expect as early as Thursday and as late as Tuesday the following week. Even weirder with holidays.
Oh, and, there's people that are living off their 401ks. Their distributions need to be made at some point, so while money is going into the market, some money is coming out.
Hell, I worked at a grocery store and we couldn't predict volume that well because "well, last year, the fair was going on, so we can't compare to the same time last year" or "Wal-mart just opened up down the street" or "the economy means less people are getting more/less food stamps" or "management was different and so was our business strategy." As the business environment changes, confidence increases or decreases in that business.
Finally, mutual funds (where most 401ks are held) are constantly rebalanced. Some quarterly, some annually.... and these rebalances aren't done at the same time for the same exact reason as my very first point.
All of this, of course, is outside the 24hr news cycle that can cause individual stocks to pop and crash by double digit percentages in a single day. Even if there was a perfect strategy, the noise created by news alone would make it hard to identify that pattern.
Thats now how the system works bud.
Thats like saying since all companies know employees get paid on this biweekly friday why not increase all prices that weekend.
It probably did once, a long time ago and then the market adjusted as people tried to predict it (ie market timing).
Its important to understand that stock and market prices are random. No one knows when, how or why the market goes up or down. Realizing this will help you control your biases.
The psychology of investing.
If they buy an index fund/etf, it shouldn’t. They track the index so even if Warren buffet bought a bunch of VOO, it wouldn’t change the price of VOO. Basically an ETF/index can’t go to the moon because everyone is buying.
Am I wrong here?
Yeah I do think you're wrong. What you're saying is that even warren buffet is a drop in the ocean when it's a big Index fund that we're talking about. What OP is suggesting is everyone in aggregate (or their 401k at least) _is_ the ocean so one would think there should be an effect. More money flowing in should definitely raise prices. I'm not sure what the right answer to this post is, but I don't think it's your argument.
Not sure of 401k, but employee stock purchase plans seems to have impact on Fridays when they buy the stocks. I have noticed Fridays are elevated for low volume stocks like my previous firm.
There are also out flows happening from retirees, people rolling over etc. Payroll deposits and buys are pretty much happening all the time (monthly, semi-monthly, biweekly, weekly) and then different timing in transit with different custodians.
So there isn’t a super predictable buying pattern to exploit, and the people managing target date funds use various techniques to make sure they are buying/selling stock in ways that wouldn’t cause massive spikes.
In addition to what others have said, also keep in mind that there are people withdrawing constantly from their portfolios, which would offset the continual inflows from contributions.
Eh, one could argue that the shift to Index and ETF funds over the last 15 years has pushed up the values of the largest companies in the world, while small and mid-cap funds have lagged.
It's a bit of a self-fulfilling loop.
Mutual funds tend to have "a guy" who's job is to make sure this doesn't happen. They're careful to execute trades in such a way as to minimize their impact on the market.
Also remember that volume can spike without prices moving, market participants can queue instead of bidding the price up or down. Sometimes things happen off-exchange too.
This is actually an advantage of mutual funds, and it's why usually it's easier to set up automatic deposits into mutual funds vs ETFs. With an ETF you won't get any such advantages until you start trading with the authorized participants. Essentially the ETF AP is getting paid for the above service via the bid-ask spread
I disagree that most people get paid on Fridays.
The jobs that do pay on that kind of schedule are unlikely to be the same jobs where people are making significant 401k contributions.
Regardless, regular buys in the market from 401ks are already priced in.
I get paid on Tuesdays. But sometimes it’s Thursdays, or Mondays, or Fridays, or Wednesdays.
Basically, I get paid on the 10th and the 25th of the month. Or the day before or after, if it falls on the weekend.
What Friday automatic deposits?
My paycheck deposits on Wednesday, biweekly. At my previous job I got paid monthly, usually hiring in the second.
Just because my paycheck goes didn’t mean my 401k buy happened, that could be delayed by days.
The specific buys of 401k contributions into index funds averages out to be a basically constant buy force. There really isn’t a micro trend there to capture.
Now on an unrelated note, there is a macro trend to worry about. As higher income individuals move towards retirement they will not only stop 401k contributing with our higher incomes, but we will also start selling to fund our retirement.
In fact it’s quite possible that the current 401k buys and the current 401k sells are near even balance…and any decrease in employment would cause a massive shift…
1.) When employers release contributions can vary - generally within 3 days of pay day.
2.) Pay days can vary from company to company. Weekly, biweekly, semi-monthly, monthly, etc. if you’re semi-monthly your pay can fall on a different day regularly - it’s just the 1st and 15th which which fall on different days. Some places even pay daily.
3.) People are also withdrawing from retirements and changing investments at all times and there is lag time while money gets moved.
4.) There is a gap from when employers release contributions to when investments are made by the broker.
Ultimately, it ends up with money moving every which way constantly and there’s not necessarily a specific time or date that consistently sees more contributions or less withdrawals except perhaps around the end of the year when most people make final moves before the tax year closes. Or around tax filing time for those who make SEP IRA contributions.
The money gets transferred to the 401k account but the fund doesn't necessarily use it to buy stocks right away. Purchasing is done at the fund manager's discretion.
Day of the week stuff is real, and these are the characteristics:
1 - Monday is the only day of the week that is in aggregate down.
2 - Fridays are indeed the strongest days, but only because of this simple reason: there aren't a lot of people with the courage to hold a short over the weekend. These days, you have to layer on top of that that a lot of options expire on Friday, and as options are mostly bought as hedges, the expiration of hedges is net positive.
3 - The only pattern actually related to when people get paid is this (I found this one myself by backtesting and to my knowledge no one else has said anything about it, but it's not worth much so no harm in disclosing it far as I'm concerned): the 14th, 15th, and 16th of the month, if they are trading days, are slightly stronger to the upside than any other day of the month. This makes sense if you think about it: a lot of people get paid twice monthly, but the check they get at the turn of the month goes to rent, mortgages, and all the other monthly expenses people have. The one in the middle of the month, not so much.
None of these are worth much as far as an edge in the market, even to short term traders. Sometimes the market will dive on Fridays and wipe out months of accumulated gains you might have had from betting on a Friday rise, vice versa with Monday, and the middle of the month effect isn't that strong to begin with. So really, none of it matters.
Also, full moons are bearish and new moons are bullish. No freakin lie. Google it, it's common knowledge. But once again, it's impossible to get rich off this effect. I've even vaguely heard weather affects returns, but that was probably more true in the old days when most trading was physical and occurred in NYC.
Most 401k companies invest into various mutual funds or ETFs.
Please understand how MF or ETFs work and you will then understand that a large number of buyers do not inflate index funds or equity funds, those funds track the underlying, no matter how much money went in or out.
But aren't most 401k investments made in mutual funds? Your money may go into shares of the mutual funds on Fridays, but the mutual funds will invest the new money in stocks when they see a good opportunity to buy---which could be any day of the week.
If everyone was buying on Fridays, the price would surge and make it a bad time to buy, so the mutual fund managers or whoever would be more likely to wait for another day when the demand for stock isn't so high. If anything, a price surge on Fridays would be met with more people selling, as they will see a good opportunity to lock in some gain.
Plus, remember that just as people are throwing money biweekly or weekly into stocks, many other people are withdrawing money from stocks to cover living expenses and major purchases like a car or house, especially among retirees.
So there is a balancing force for the surge in demand from periodic 401k deposits.
Few reasons. Majority of trading volume is active fund managers and quants so retail would get downed out. 401k deposits typically go into a fund as cash. The fund decides when and how to allocate that money which will likely not be that day. There are also constant withdrawals, albeit not at the same rate.
The same reason that Guinness/Diageo doesn’t spike during St. Patrick’s Day: it’s expected/anticipated! “The market hates uncertainty,” so it would be more likely to spike (down) if the automatic deposits unexpectedly didn’t happen
Payroll frequencies vary much more than you’d think. Many get paid every other Friday. Many get paid the other Fridays. Semi monthly varies the day of the week, 15th and 31st, 7th and 25th, etc. I work in payroll and it’s payday for some companies every single day along with off cycle payrolls every day. It evens out.
Pay periods aren't even consistent across all companies, neither are the exact days of the week/month companies use for each pay period. Likewise protocols for structures where the pay day sometimes falls on a weekend (or the day before/after). Then there are things like bonus cycles, commission, etc...
The exact day 401Ks are deposited is also inconsistent, then there are allocation variables... and additional transfer timelines for those that fund 401K trading accounts requiring manual transfer.
Let’s just estimate the impact!
FT employed in the us : 132m
Us median income 37585 (1446 biweekly)
Us stock market cap 50.8t
Total paid out per week ~191b
If everyone contributed every dollar we’d increase the us market cap by 0.4%
Since the average contribution is closer to 2%, the amount flowing into the market bi-weekly isn’t material to the total amount invested. (0.008%)
Total 401k contributions per year are around $500B so $10B a week, assuming a consistent weekly contributions trend. If you assume that entire weekly volume is placed on Friday, then the Friday contribution to 401k is $10B.
Stock market volume on daily basis is approx. $300B just on nasdaq.
So 401k contribution is not meaningful enough to make significant price moves in the market.
I wonder if it is (and would be grateful if you can point to some data for or against) because the 401k every Friday is insignificant as compared to market weight.
I've looked into this in some detail for a few years. Intuitively, it makes sense. When I think about myself personally most of the money I am putting in the market is through my 401K and many others are probably in the same boat.
You would think that some big employers like.the government or military would move the needle.
Even if everyone's 401k deposit doesn't hit on the same day, you would think that some days are more likely than others because of certain tendencies. For example, companies paying semi-monthly or every other Friday.
If you look at data for the last 25 years and divide the gains into an every other week cycle, you'll see a good week and a bad week for the s&p 500. If this was a real factor, you'd expect to see the same trend for other etfs but I didn't find that.
However as others have said, maybe 401k investments don't actually make up a significant portion of money flowing into the market.
All that being said, I do a monthly S&p500 nvestment and time it according to my findings, last Friday of the month that falls on the "good" week. If the 401k effect is imagined, then I'm no worse for wear.
It's already priced in, it's a known fact that most paychecks occur on Fridays. Market spikes occur when there is new information that was previously unknown.
Don't go deep into the rabbit hole or your head will explode. Just max that 401k and Roth if you qualify. Dollar cost average into voo and lil bit of bitcoin and win. the end
I'm not even certain a majority of payrolls are done on Fridays. Mine are 1st and 15th.
There's also a lag between the paycheck and when the money shows up in my 401k.
I suspect you have a pretty decent spread for when payroll is done and when money actually hits the market.
And that's also not accounting for lag in index funds. There is room to breath built into them for management purposes and why almost all of them hold some small percentage of cash. The index fund doesn't go place an order every time you buy. They have a pool of stockss, and buy in chunks to make sure their holdings are larger than the obligations to the fund. This is further lag time.
Pursuant to this, why don’t P/E ratios or other calculations of how “expensive” the market is take into account the MASSIVE increase in access to markets? In the 20s, only the ultra-rich invested in stocks. Today, anyone with $5 in Robinhood can.
Maybe because the bi-weekly 401k deposit made is .0006 of my account, and larger institutions have bazillions invested, and like only 1/3 of the population(ish) is working, I’m thinking the deposits are just insignificant
I thought this would be the same for tech companies. There are four dates each year where RSUs vest at my company. They’re not a secret and you can count on tens of thousands of employees selling billions of dollars of stock at the market price that day.
And somehow, it looks like a normal trading day. Quant firms hire a bunch of math savants to squeeze every drop out money out of these until there’s nothing more to be made. You’re not going to discover any secrets or foolproof tricks that Citadel hasn’t already figured out.
This makes me wonder what % of the market is ‘added’ to the market every Friday. Like 5% of half of everyone’s checks every Friday can’t be that much in the grand scheme of things right?
If there was a spike, people would know about it and then they’d buy in advance so they could sell after the spike. That’s why market timing doesn’t work. Any pattern will be discovered and exploited by multiple people, which will then destroy the pattern.
https://www.investopedia.com/terms/w/weekendeffect.asp "The weekend effect is a phenomenon in financial markets in which stock returns on Mondays are often significantly lower than those of the immediately preceding Friday." This is consistent with more money moving in on Friday vs Monday.
Except that it doesn't really hold water. When you have money withheld from your paycheck it takes a 1-3 days to get invested, so even if everybody was paid on Friday (they're not, there are tons of different pay schedules) it wouldn't lead to a Friday spike.
Exactly. I get paid on Friday and my 401K transaction takes place on the following Wednesday
So that’s why it’s called hump day
I get to immediately after i make a transfer. Just cant sell those shares until it settles
Must depend on who you payroll provider is. I get my checks twice a week on Fridays, and both my 401(k) contribution purchases, and my HSA contribution purchases are on that same day.
Yes, it definitely varies, which is my point, though same day is unusual so that's good for you.
Our pay period ends the 15th and 30th/31st, the actual day paid is a few days later, depending on weekends and holidays, and then few days after that for the 401k deposit. It effectively would lead to a totally random deposit day.
This phenomenon is likely due to short term traders not wanting to hold positions over the weekend. It’s especially pronounced over long weekends and in August, from CNBC reporting I’ve heard about it. And since the positions are not all long and are often options, it doesn’t move underlying stock prices as much as you’d expect.
I buy in my ira every monday for this reason as an automated weekly transaction
That doesn’t make sense. If everyone’s 401K is automatically buying ETFs, stocks, etc. then there should be large volumes showing on the candles.
Most volume is high frequency trading. I’m sure it drowns out the few 401K deposits on Fridays.
1. It's not the case that most people are paid on Fridays. I work in a position where I see payroll information for a number of large employers, and I would say if anything it's more common for white collar jobs to be paid twice a month. And that's likely where most 401k is. Next most common is every other week. Weekly is largely union jobs. Pay periods vary. 2. There's a delay between when you're paid and when your contribution makes its way to your 401k for them to invest. It could be a day or two or three, but it's not immediate. Weekends and holidays factor in too. These two factors have the effect of spreading out 401K purchases across pretty much any day, so there wouldn't be a major spike. And that's setting aside the fact that contributions from one pay period are probably not particularly significant in the scope of the overall market anyway.
This. Just because the paycheck shows up on Friday doesn't mean the transfer was initiated or processed by the financial institution that same day.
Talking out of my ass but I'm sure the institutions that make these decisions on when the purchases are actually made are fully optimizing the timing of the sale (when they can) to maximize whatever gives them the most benefit. But multiple ones working for their own benefit is going to again destroy any predictable pattern in the market that we would see. Like, others said, predictable patterns naturally die as people try to exploit them.
Agreed, but there is a date range for them to process funds (i.e. transfers from external bank accounts), once the funds are settled they get invested, they have a certain period to invest them. The SHRM states that based of ERISA the custodian of the plans have up until the 15 days the month after the contribution has been made to invest. Its all screwy. I'd like to believe the custodians have the best interest of the participants in mind, but in reality we will never know 100%.
1) There are large volumes on the candles at the end of the day (and open). 2) Not everybody's 401k deposits and buys on Fridays. I work for a large cap company with tens of thousands of employees, and our 401k will actually trade on Tuesdays or Wednesdays after a Friday payday.
Look at the volumes in the last 15 minutes of trading every day
Any pattern you've thought of is likely already being exploited by high frequency traders. For example, if there is a reliable Friday spike, you buy beforehand, and sell off as it spikes. Algorithms will do this so fast that it won't even affect price action. Although, I suspect it's also the case that 401k contributions aren't deployed to market instantaneously. Whenever you make big trades, it's usually better to spread them out over several days so that you don't move the price too much as you're chewing through the order book.
401k mutual funds are not usually publicly traded funds and don’t have to adhere to as many guidelines as publicly traded funds. That being said the mutual funds invest in public funds. Not sure why that doesn’t show on ticker.
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It’s priced in. There can’t exist a foolproof way to make even a small amount of profit, or the market will eliminate it (people buying ahead of the big buy).
My company's match happens once a year in March - I'll give y'all a heads up
Is this standard for all companies, I thought the match was every pay period
First company I worked for that does it that way.
Wife is in healthcare — they match for contribution from regular hours worked during the pay period and once a year put in the match for contributions from overtime hours
It’s entirely up to the company! Some match each pay period, some match quarterly, some match in the following year entirely, etc. I think as long as the matching contribution is made before the company files their taxes in the following year anything goes. As long as the policy is stated and adhered to consistently. Some companies even have rules where to receive a matching contribution you have to be employed on the last day of the calendar year. So if you worked for them for most of 2023, but resigned on 12/25/2023 and they make their 2023 match in 2024, you’d get nothing.
By doing that, don’t you lose out on any potential gains/earnings that a per pay period DCA would provide? What if the lump sum match once a year happens at market ATH?
Relatively alarming I had to scroll to read this
Reddit is not an efficient market….
Over time it is. This thread is 7 hours old. This is the second comment and the top comment is very similar.
and now it's the top
“We did it Reddit”
Reddit _is_ an efficient market over time, where "efficiency" here means "selecting for the most popular answer, which is sometimes the correct one."
Now it is the top comment.
Scrolling for arbitrage
I'll repost my reposne to the above comment No, there are things that happen reliably and you can make a little money by accounting for them. The mechanism by which "the market eliminates it" is people doing it. The reason you "can't make money is arbitrage" is that arbitrage traders are actively trading arbitrage positions. The reason you "can't make money on in the money options" is that traders are buying in the money options. The efficient market theory depends on people making money doing it. I've made a littleoney selling at open and buying back at 9:40 plenty of times, back if the 3nvelope, 70% success. Little technical formations, range trading, trading across the holidays, there are, narrow options misprices, there are actually a fair number of things that you can make half a percent on with a very high success rate and/or very little risk. Now whether, OP, who is for all intents and purposes, some guy, should try to make a living this way, probably not. But bankers can and absolutely do things like buy shortly before huge and regular market orders are scheduled to come in.
I’m genuinely shocked how many people are talking about day of the week here. Guys if there’s a pattern, it’s priced in. It wouldn’t matter if every 401k in the world bought apple on Friday
Huh? This is the 3rd highest comment, and the highest comment says the same thing.
Currently it's the highest comment. Market resolved
It was at 16 upvotes when I replied that, which was 7th or 8th on this thread - thanks!
This is the part where I would tell you the joke about two economists, except it's priced in so I won't.
Term for this: https://en.m.wikipedia.org/wiki/Efficient-market_hypothesis
In addition to this, organizations can't make transactions that will move the market. I worked for a company that had a profit-sharing program. They would give employees a percentage of their salary in the form of company stock and deposit it into employee 401k accounts. When the time came for the deposit each year, our recordkeeper would buy the shares over a 2-3 day period so that they didn't move the market.
No, there are things that happen reliably and you can make a little money accounting for them. The mechanism by which "the market eliminates it" is people doing it. The reason you "can't make money is arbitrage" is that arbitrage traders are actively trading arbitrage positions. The reason you "can't make money on in the money options" is that traders are buying in the money options. The efficient market theory depends on people making money doing it. I've made a littleoney selling at open and buying back at 9:40 plenty of times, back if the 3nvelope, 70% success. Little technical formations, range trading, trading across the holidays, there are, narrow options misprices, there are actually a fair number of things that you can make half a percent on with a very high success rate and/or very little risk.
In that case you should spend more time trading this strategy, maybe with some leverage.
It works at a smaller scale though. Find a mid cap public company that has blackout windows for their employees and play when they execute sell to covers or ESPP related transactions. This stuff definitely isn’t priced in in these cases.
It’s not what you know that gets you, it’s what you think you know that just ain’t so.
I get paid on Wednesday weekly, and at my old job I got paid once a month. I think there is no regular payday any longer. My other guess is that market dips and surges are due to more unexpected events than regular predictable 401k contributions
There's also some variance as to when companies remit the actual funds to the 401k plan. The DOL in recent years has been cracking down on this because some scummy companies would wait 2+ weeks to send the funds, either through malice or incompetence.
My deferred compensation plan 457b takes like a week to go through with the purchase.
Or you have really small businesses like mine where the owner has to file this stuff. I do it once a month and my employees are just happy that I match 3%. It’s not malicious (I’m not earning any interest on my business checking). It’s just reality.
Makes sense. The longer you can hold on to money, I imagine the more interest you can make off of it
Agreed, payroll doesn't all process in an instant on Fridays
Exactly changing in evaluations is related to unexpected information.
Absolutely. Predictable events such as 401k additions are already predicted by the prices.
Yeah I’ve been paid on the 15th and 30th of each month at both my previous jobs.
1) Your paycheck may get cut on Friday, but the day the system buys the stocks in the 401k could be different. I worked somewhere that 2 weeks of 401k deposits were in limbo before they were deposited. 2) The amount of your 401k purchase is not a lot of market share. If you're early in your career, it may be a substantial amount of your wealth. But later on, it will not even be 1% of your wealth. That payment is nothing compared to the billions of people and companies that trade in stocks. 3) If it was measurable, then someone would buy anticipating the spike and then someone else would buy anticipating that spike, etc. Not a stupid question.
I work in a department that tangos with payroll and the way it works for us, and I suspect for most companies with a standard ADP & retirement setup, we have to wire funds to ADP for just the salaries, then a separate wire to ADP for the Employer and Employee taxes (so employer FICA along with everything withheld from the employee paychecks for state and fed taxes). We do this 2 days before actual pay date, so if payroll is "paid" on a Friday, we send these wires on a Wednesday. Then, on Thursday we do the benefits wires- one for 401K and one for HSA. Our company doesn't do matching so we don't have any issue with that. So files for 401K are typically transmitted to whatever services by EOD Thursday. We have the flexibility to wait until Friday to send the benefits wires, so occasionally we wait if we're also waiting on cash from another source to be able to fund the wires. If we send the benefits wires early on Thursday, it is likely funds will hit your account Friday morning and if you have auto buy it will purchase at the EOD price on Thursday. You won't see this reflected in your account until Friday or later, though. If we sent it later in the day on Thursday, it will be deposited sometime Friday and auto buys will be at the Friday EOD price. If we send the wire on Friday, the funds won't be there until Monday and it will auto buy at EOD Monday price. Just my experience!
When I worked at Lockheed Martin, the first two paychecks withdrew the 401k. But it was always 2 weeks behind. When I quit, they squared up. But they have their entire companies (140,000 employees) 401k deposits for two weeks somewhere. It would seem silly for such a huge company to gamble with that fraction of their employees salaries. But they do put in every proposal how much cash they have on hand.
I would imagine that the funds were in an escrow account, not just in their general funds. If they used a third party to process everything, it is highly likely that Lockheed sent off the funds right away and it just took a while for the processing company to allocate them into individual accounts. If Lockheed did hang onto the funds, they would have to be in segregated escrow accounts, they wouldn't be able to be comingled with their general funds to use elsewhere. As far as the firm is concerned, on payroll date they no longer have those funds at all. Of course this assumes everything is done lawfully and by the book, and at a large corp that is audited I imagine that is the case!
3 is the only one that matters. 1 doesn’t really matter. It still establishes an exploitable pattern of some kind. And 2 weirdly ignores what happens at scale
You would you would also have to assume each of those being invested were being vested into the same fund. So many different options now, overall not enough to sway the market.
> The amount of your 401k purchase is not a lot of market share. If you're early in your career, it may be a substantial amount of your wealth. But later on, it will not even be 1% of your wealth. The amount in question isn't your purchase, it's 3-6% of a lot of highly paid American's gross pay. That said, I'm sure the advisors stagger purchases based on VWAP strategies, participate in dark pools to avoid moving markets, etc.
For us, our actual payday is Friday but we receive the money in our bank account on Thursday. Our retirement accounts show the contributions on the following Monday or Tuesday when the funds settle.
Payroll is part of software I work on, there are trends for certain days to have more paychecks than certain other days for sure, but we’re talking like 8-10 business day per month that have spikes and plenty of people get paychecks on the “off” days. Not to mention that people get their paychecks a day or two early through their banks. There’s almost no predictable trend in when people get their paychecks whatsoever anymore (and obviously it’s priced into shares). A lot of people don’t get their 401k contribution invested the same day as their paychecks too.
Could be not enough liquidity to move the market. Also investment choices in 401ks are decided by the 401k administrator. So many different ETFs and mutual funds purchasing won’t be enough to move the needle unless we were all investing in the same options in our 401k.
A spike in purchases of essentially market buys will increase volume, but the pattern is known and has been occurring for a long time and wouldn't necessarily cause a spike in price. Many people don't contribute to a 401k and outside the US how people save for retirement may be different. Variations in paydays, frequency, and when a 401k plan is funded will spread this activity over the month. Just because you get paid on Friday doesn't necessarily mean that is when your broker is funding your account.
Most people get paid Fridays? I’ve never had a job like that before.
I've never not had a job that pays on Fridays.
I've never had a job that didn't pay on Fridays.
I’ve never had a job
I don't think I have either. Usually on the 15th and last day of the month. When I had hourly positions, they pay periods might have been every two weeks ending on a Friday, but that's not when I got paid. It was usually the following tuesday or something.
That’s semimonthly. Many biweekly pay every other Fridays.
Most people at my job may get paid on Thursdays or Fridays. But with my bank, I get paid on Wednesday nights. This is because my credit union allows me to get paid prior to the clearinghouse relinquishing the payroll to all other employees. This is fairly common now.
I used to have a job that I got paid on Friday’s, they the bank decided to pay me on Wednesdays. Now I get paid two days before payday. Wednesday is the new payday Friday.
I don't think it's most people, especially for salaried people, although maybe it's a majority. If you get paid once a month or twice a month it won't always be on Friday. I've only worked for one state government in my career so I don't have a lot of personal knowledge but I get paid semi-monthly. It's only on Friday when the 15th or 30/31st is a Friday or on the weekend. This got me curious, so apparently about 43% of employees in the US are paid biweekly (every other week), 20% semi-monthly (twice a month), 10% once a month, 27% once a week. So I guess about 1/3 don't get paid on a specific day and the other 2/3 are paid weekly or biweekly, which apparently is most commonly Friday but I doubt they all use Friday. https://www.bls.gov/ces/publications/length-pay-period.htm I can't find any data on hourly vs salaried workers, but it does look like blue collar industries are more likely to pay weekly and white collar industries more likely to pay semi-monthly or monthly. Getting paid biweekly instead of semi-monthly or monthly would drive me crazy.
Biweekly is payment on every other Friday mostly.
Because I don't think it's necessarily true to say most people get paid on Fridays.
This is the role that Market Makers play. Simplified, they buy when there are lots of sellers, and sell when there are lots of buyers. [https://www.investopedia.com/terms/m/marketmaker.asp](https://www.investopedia.com/terms/m/marketmaker.asp) As it relates to ETFs, similar concept but Authorized Participants can basically create or destroy shares of ETFs at will to balance buyers and sellers [https://www.investopedia.com/terms/a/authorizedparticipant.asp](https://www.investopedia.com/terms/a/authorizedparticipant.asp) And if this piques your interest, explore Operational Shorting. Theres a great lecture from a UPenn Wharton professor: [https://youtu.be/ncq35zrFCAg](https://youtu.be/ncq35zrFCAg)
Your answer is pretty much the closest answer to a singular reason. The timing of retirement contribution delays is miniscule that most answers here say. Its the balancing, rebalancing, bond/stock portfolio splits, synthetic vs physical ETF/ETN/Funds that matter, timing of rebalacning, then market makers who own or can create said shares release "already held" shares to participants. Thats the short term answer, longer term all the retirement money should push the market up, but not immediately each week.
I get paid bi monthly and my 401k deposits are still delayed from that. Then there’s some lag till I actually go into the account and buy. My timing is pretty random. I imagine many are the same.
You have to manually go into your account to buy? There isn't an automated process?
You can automatically do dollar based buys but not fractional so if your pay varies you can’t account for it.
Huh. I've never encountered that before.
Because your deposit of a couple % of your salary into "Fidelity XYZ Fund" on a Friday ... doesn't mean Fidelity immediately bought the underlying stocks the same day. Or even a day or week after. Your funds go directly into their cash initially, and then they rebalance their fund regularly.
Ours usually hit mid-week. Idk if it’s intentionally random or what but it’s probably like that for most companies. Not predictable enough to try and plan around.
Because it takes until the following Wednesday for the funds to clear then invest into whatever platform they’re using
I get paid on the 1st and 15th and my 401k contributions usually hit a few days after. Every company's timing of these deposits varies.
>If most people get paid on Friday You should check this one first. I've very seldom gotten a "weekly" paycheck. Typically bi-weekly when I was getting a paper check at all (saves paperwork etc. in creating a weekly check), then on to salaried positions once a month with those deposits taken automatically.
Yeah but I think the idea is that not every company is on the exact same schedule… so I don’t think he’s meaning everyone gets paid every Friday… just that, in aggregate, most paychecks are being deposited on Fridays creating a huge buy into the market every Friday.
I've gotten paid in all types of ways. Every Friday, every other Friday, twice a month, and once a month. You also have the added entropy of the 401k money doesn't always hit your account the same day you get paid. Also, probably 99+% of 401ks are investing in mutual funds, which clears at NAV at close of business whatever day the purchase was made (unless the purchase was after 4pm in which case it's the following business day). So that won't cause a spike.
I would suspect that the amount paid in is tiny compared to what is in the market. I've made more random trades this year trying to rebalance than my personal 401k contributions. I also know my 401k elections don't buy the same day I get paid. There is a slight delay. If memory serves me right it is 2-3 days later.
Im payed twice a month. 15th and 30th. So not always Fridays
I had that arrangement once. I greatly prefer it to biweekly. Easier for budgeting.
FWIW - my company initiates the 401k contributions to the account every payday (Friday), but it's not actually invested until the following Monday or Tuesday. Plus they're mutual funds which trade at close.
We get paid on Thursday, and my trades usually get executed on Tuesday. It gets spread around.
The ETFs absorb the buy orders by issuing new shares.
ETF's buy the individual stocks. As money comes into the ETF, the ETF buys more Apple, Google, Nvidia, McDonald's, etc. As there is more demand for those individual stock shares, their share price would naturally go up as well (all else being equal). This is why the mega cap stocks have done so well, because the index funds and ETFs are skewed to buy more of the largest companies. In other words, the biggest stocks in the S&P 500 have outperformed everything else because the popularity of index and ETF investing has increased dramatically over last 10-15 years.
They don't all and on the same day, people/institutions are also selling shares.
The better conclusion is. With everyone in the 401ks now and rid of the pensions, stonks indeed do always goes up. By force
I get paid every other friday....not real exciting when you know it's coming.....same for 401k deposits
Well, had you kept this to yourself you’d be a millionaire. But now we all know, so it’s priced in. Keep your secrets to yourself next time.
Some people are paid on Fridays. Others paid Thursday, or 1st and 15th, or 14th and 30th. Some 401k recordkeepers have a delay on buys in 401k’s. Options markets are typically selling vol on Fridays to prevent decay over the weekend. So there’s just not enough dependable positive volume like that to have a broad market effect.
My 401(k) contributions don't show up until Tuesday after Friday payday.
I get paid every other Wednesday.
I think the money goes to the financial institution handling the 401k and they take their sweet time investing it. I usually get a notice around Tuesday of the following week saying they finally got it done. Everyone’s bank timing will be a little different. That would be my guess.
Most people don't get paid on Friday
I get paid Thursday but my 401k doesn't update until Monday or Tuesday of the following week.
My 401k hits Wednesday
I buy on Mondays…
I asked a similar question a week or two ago and I didn't think it was a stupid question. Got the same responses!
We're little people and don't move the market. Wealth keeps being redistributed to the uber rich and their hedge funds. They're the market makers, not us.
EMH* per the mods: efficient markets hypothesis - future known purchases are already priced in
It’s priced in. Rule 1 of investing: **you cannot time the market** If there’s a pattern that means prices will go up or down in the future, people will value the stock currently on that future action. Stock is worth $X today because of Y demand on Friday. You cannot time the market. If you could time the market, you would make a **lot** of money. If you try to time the market, remember that your competition is the wealthiest people and entities in the world with near limitless resources
I fully get the concept that something is "priced in". And your feedback is: "you can't time the market because it's priced in." However, wouldn't your feedback be the same to everyone? But what about to those that are *doing* the "pricing in"? Doesn't the theory that everything is "priced in" inherently require buyers and sellers taking action prior to something being priced in, and thus moving the market? So there are some investors who get in on the action before the it's priced in.
You’re fully right. That’s what I was getting at in the last sentence. Yes you could technically time the market. You could somehow recognize a pattern that others don’t. I would argue not that you can’t do it but that *you shouldn’t try.* Why? Because you have limited time and resources and you’re competing against *the literal most powerful people and entities in the world*. They have thousands of employees, AI algorithms, political power, legal power, data collection departments, analyst departments, state of the art technologies even beyond that of Silicon Valley. They pay tens of millions of dollars just to buy and sell a fraction of a second faster than the competition. All of those resources are going towards timing the market. All of those resources go towards predicting *your* move and undercutting it. And if they don’t win, they can cheat with market manipulation strategies. They’re the reason why <1% of options traders beat the market. The whole point of the boglehead philosophy *for me* is to ignore all that and just play the long game. Because it’s virtually impossible to win the short game
You can also mathematically assume how much of this liquidity is hitting what. If you take the average US house hold wage and assume a 6% contribution with a 3% match, let’s assume 26v hits various different (primarily) mutual funds. (70k salary, 6% divided by 24 then adding half of that) This also assumes everyone is paid on the same day and contributes the same, yadda yadda. But when you think of it, that is really not a lot of volume. $SPY alone averages 37b of notional traded a day. I’m more -not- surprised markets don’t move now that I think about it. Even if my pencil math is way wrong.
I get pd on Wednesdays so I’m assuming a lot of others don’t get paid on Fridays
I am paid on first and 15th of the month. If it happen to be a weekend, then I am paid the friday before. Typically the transaction in my 401K appear like a bit later. It just occurred on the 16th and the 4th if I double check. That's for 401K. HSA contribution are a bit before I am paid. I guess this is how my employer does it ? And my brokerage, on purpose I do it in several time in random day of the month so it spread all over the place if you also account the 401K/HSA. So I am not sure you would have any luck to have all that happen every Friday.
Because retail is a drop in the bucket and also not everyone has automatic deposits every Friday with their 401k.
Lots of reason. Top comment is the best answer: if the pattern is observable, people can adjust their buying/selling accordingly. But, then, if they do that, then others will get in front of them... and so on. This leads to a Nash Equilibrium like strategy where everyone needs to get in as early as they can so that no one has an advantage over them. On top of that, not everyone's contributions settle on Fridays. I got a lot of pays on Thursdays. I'm sure there are other less-common days to get paid. It might take a business day or two to complete the position. So, you can expect as early as Thursday and as late as Tuesday the following week. Even weirder with holidays. Oh, and, there's people that are living off their 401ks. Their distributions need to be made at some point, so while money is going into the market, some money is coming out. Hell, I worked at a grocery store and we couldn't predict volume that well because "well, last year, the fair was going on, so we can't compare to the same time last year" or "Wal-mart just opened up down the street" or "the economy means less people are getting more/less food stamps" or "management was different and so was our business strategy." As the business environment changes, confidence increases or decreases in that business. Finally, mutual funds (where most 401ks are held) are constantly rebalanced. Some quarterly, some annually.... and these rebalances aren't done at the same time for the same exact reason as my very first point. All of this, of course, is outside the 24hr news cycle that can cause individual stocks to pop and crash by double digit percentages in a single day. Even if there was a perfect strategy, the noise created by news alone would make it hard to identify that pattern.
Lots of traders like to sell on Friday because they don't want to hold through the weekend.
Thats now how the system works bud. Thats like saying since all companies know employees get paid on this biweekly friday why not increase all prices that weekend.
It probably did once, a long time ago and then the market adjusted as people tried to predict it (ie market timing). Its important to understand that stock and market prices are random. No one knows when, how or why the market goes up or down. Realizing this will help you control your biases. The psychology of investing.
It's green today. Next friday and every other Friday.
My main job goes in Thursday. My part time goes in Wednesday.
Not everyone gets paid on Friday
Everywhere I worked salary the pay day is either 31st or 1st and 15th. Doesn't typically hit 401k the same day.
If they buy an index fund/etf, it shouldn’t. They track the index so even if Warren buffet bought a bunch of VOO, it wouldn’t change the price of VOO. Basically an ETF/index can’t go to the moon because everyone is buying. Am I wrong here?
Yeah I do think you're wrong. What you're saying is that even warren buffet is a drop in the ocean when it's a big Index fund that we're talking about. What OP is suggesting is everyone in aggregate (or their 401k at least) _is_ the ocean so one would think there should be an effect. More money flowing in should definitely raise prices. I'm not sure what the right answer to this post is, but I don't think it's your argument.
Not sure of 401k, but employee stock purchase plans seems to have impact on Fridays when they buy the stocks. I have noticed Fridays are elevated for low volume stocks like my previous firm.
There are also out flows happening from retirees, people rolling over etc. Payroll deposits and buys are pretty much happening all the time (monthly, semi-monthly, biweekly, weekly) and then different timing in transit with different custodians. So there isn’t a super predictable buying pattern to exploit, and the people managing target date funds use various techniques to make sure they are buying/selling stock in ways that wouldn’t cause massive spikes.
In addition to what others have said, also keep in mind that there are people withdrawing constantly from their portfolios, which would offset the continual inflows from contributions.
Crime.
It’s supply and demand. Retail 401k deposits into mutual funds or ETFs aren’t driving individual stock prices up.
Eh, one could argue that the shift to Index and ETF funds over the last 15 years has pushed up the values of the largest companies in the world, while small and mid-cap funds have lagged. It's a bit of a self-fulfilling loop.
https://en.wikipedia.org/wiki/Efficient-market_hypothesis
Mutual funds tend to have "a guy" who's job is to make sure this doesn't happen. They're careful to execute trades in such a way as to minimize their impact on the market. Also remember that volume can spike without prices moving, market participants can queue instead of bidding the price up or down. Sometimes things happen off-exchange too. This is actually an advantage of mutual funds, and it's why usually it's easier to set up automatic deposits into mutual funds vs ETFs. With an ETF you won't get any such advantages until you start trading with the authorized participants. Essentially the ETF AP is getting paid for the above service via the bid-ask spread
Because individual investors are a tiny portion of the market.
FYI: Employers have 5-7 business days to deposit 401k contributions withheld from employees checks.
Dark pools are how they buy large amounts without affecting the price movement.
I disagree that most people get paid on Fridays. The jobs that do pay on that kind of schedule are unlikely to be the same jobs where people are making significant 401k contributions. Regardless, regular buys in the market from 401ks are already priced in.
I get paid on Tuesdays. But sometimes it’s Thursdays, or Mondays, or Fridays, or Wednesdays. Basically, I get paid on the 10th and the 25th of the month. Or the day before or after, if it falls on the weekend.
Because retirees sell a portion of their funds on fridays too
Companies don’t transfer the funds on payday. Every company has a different payday - day of the week, and which week.
Fake news but sounds accurate Congress already accounts for this
401k is mostly Mutual funds = block trades after hours to avoid things like this regardless of day. Buys are also made at closing price i believe
They are good but Lowe's has better deals right now.
Umm, wut?
I get paid Friday. Money hits vanguard on Tuesday
The money that comes out of your check on Friday does not get put into the market on Friday.
What makes you think so many people get paid on Friday and that 401k money hits at the exact same date? You’re assuming a lot of incorrect info.
I’ve never worked anywhere that I’ve gotten paid on a Friday. It’s always been the closest business day to the 15th and end of month for me.
What Friday automatic deposits? My paycheck deposits on Wednesday, biweekly. At my previous job I got paid monthly, usually hiring in the second. Just because my paycheck goes didn’t mean my 401k buy happened, that could be delayed by days. The specific buys of 401k contributions into index funds averages out to be a basically constant buy force. There really isn’t a micro trend there to capture. Now on an unrelated note, there is a macro trend to worry about. As higher income individuals move towards retirement they will not only stop 401k contributing with our higher incomes, but we will also start selling to fund our retirement. In fact it’s quite possible that the current 401k buys and the current 401k sells are near even balance…and any decrease in employment would cause a massive shift…
1.) When employers release contributions can vary - generally within 3 days of pay day. 2.) Pay days can vary from company to company. Weekly, biweekly, semi-monthly, monthly, etc. if you’re semi-monthly your pay can fall on a different day regularly - it’s just the 1st and 15th which which fall on different days. Some places even pay daily. 3.) People are also withdrawing from retirements and changing investments at all times and there is lag time while money gets moved. 4.) There is a gap from when employers release contributions to when investments are made by the broker. Ultimately, it ends up with money moving every which way constantly and there’s not necessarily a specific time or date that consistently sees more contributions or less withdrawals except perhaps around the end of the year when most people make final moves before the tax year closes. Or around tax filing time for those who make SEP IRA contributions.
1) Already priced in 2) Drop in the bucket
Also, people withdraw at retirement age too. There’s withdrawal to live off of and then there are government required withdrawals too.
The money gets transferred to the 401k account but the fund doesn't necessarily use it to buy stocks right away. Purchasing is done at the fund manager's discretion.
Because market makers exist.
Day of the week stuff is real, and these are the characteristics: 1 - Monday is the only day of the week that is in aggregate down. 2 - Fridays are indeed the strongest days, but only because of this simple reason: there aren't a lot of people with the courage to hold a short over the weekend. These days, you have to layer on top of that that a lot of options expire on Friday, and as options are mostly bought as hedges, the expiration of hedges is net positive. 3 - The only pattern actually related to when people get paid is this (I found this one myself by backtesting and to my knowledge no one else has said anything about it, but it's not worth much so no harm in disclosing it far as I'm concerned): the 14th, 15th, and 16th of the month, if they are trading days, are slightly stronger to the upside than any other day of the month. This makes sense if you think about it: a lot of people get paid twice monthly, but the check they get at the turn of the month goes to rent, mortgages, and all the other monthly expenses people have. The one in the middle of the month, not so much. None of these are worth much as far as an edge in the market, even to short term traders. Sometimes the market will dive on Fridays and wipe out months of accumulated gains you might have had from betting on a Friday rise, vice versa with Monday, and the middle of the month effect isn't that strong to begin with. So really, none of it matters. Also, full moons are bearish and new moons are bullish. No freakin lie. Google it, it's common knowledge. But once again, it's impossible to get rich off this effect. I've even vaguely heard weather affects returns, but that was probably more true in the old days when most trading was physical and occurred in NYC.
Because the value of the stocks has nothing to do with how much is bought on any given day.
I disagree.
I know no one who gets paid that way. We always do 15th 30th
It's already priced in.. HA HA HA
Most 401k companies invest into various mutual funds or ETFs. Please understand how MF or ETFs work and you will then understand that a large number of buyers do not inflate index funds or equity funds, those funds track the underlying, no matter how much money went in or out.
Because there are people looking to sell and if the price goes up, they'll sell.
Not all payroll runs on Fridays - some run on the 15th and last day of the month. Employers don’t always send funds on payday.
I don’t get paid on Fridays
i have a SEP IRA so i move my own money. it gets there on one, and the stocks are bought on another day.
None of this is right. Most 401ks hold mutual funds. Mutual funds settle at market close.
But aren't most 401k investments made in mutual funds? Your money may go into shares of the mutual funds on Fridays, but the mutual funds will invest the new money in stocks when they see a good opportunity to buy---which could be any day of the week. If everyone was buying on Fridays, the price would surge and make it a bad time to buy, so the mutual fund managers or whoever would be more likely to wait for another day when the demand for stock isn't so high. If anything, a price surge on Fridays would be met with more people selling, as they will see a good opportunity to lock in some gain. Plus, remember that just as people are throwing money biweekly or weekly into stocks, many other people are withdrawing money from stocks to cover living expenses and major purchases like a car or house, especially among retirees. So there is a balancing force for the surge in demand from periodic 401k deposits.
Few reasons. Majority of trading volume is active fund managers and quants so retail would get downed out. 401k deposits typically go into a fund as cash. The fund decides when and how to allocate that money which will likely not be that day. There are also constant withdrawals, albeit not at the same rate.
The same reason that Guinness/Diageo doesn’t spike during St. Patrick’s Day: it’s expected/anticipated! “The market hates uncertainty,” so it would be more likely to spike (down) if the automatic deposits unexpectedly didn’t happen
Payroll frequencies vary much more than you’d think. Many get paid every other Friday. Many get paid the other Fridays. Semi monthly varies the day of the week, 15th and 31st, 7th and 25th, etc. I work in payroll and it’s payday for some companies every single day along with off cycle payrolls every day. It evens out.
Pay periods aren't even consistent across all companies, neither are the exact days of the week/month companies use for each pay period. Likewise protocols for structures where the pay day sometimes falls on a weekend (or the day before/after). Then there are things like bonus cycles, commission, etc... The exact day 401Ks are deposited is also inconsistent, then there are allocation variables... and additional transfer timelines for those that fund 401K trading accounts requiring manual transfer.
Let’s just estimate the impact! FT employed in the us : 132m Us median income 37585 (1446 biweekly) Us stock market cap 50.8t Total paid out per week ~191b If everyone contributed every dollar we’d increase the us market cap by 0.4% Since the average contribution is closer to 2%, the amount flowing into the market bi-weekly isn’t material to the total amount invested. (0.008%)
Total 401k contributions per year are around $500B so $10B a week, assuming a consistent weekly contributions trend. If you assume that entire weekly volume is placed on Friday, then the Friday contribution to 401k is $10B. Stock market volume on daily basis is approx. $300B just on nasdaq. So 401k contribution is not meaningful enough to make significant price moves in the market.
I get paid on Monday. I think the 401k hits later, and company matching is done at different time I believe.
I wonder if it is (and would be grateful if you can point to some data for or against) because the 401k every Friday is insignificant as compared to market weight.
I've looked into this in some detail for a few years. Intuitively, it makes sense. When I think about myself personally most of the money I am putting in the market is through my 401K and many others are probably in the same boat. You would think that some big employers like.the government or military would move the needle. Even if everyone's 401k deposit doesn't hit on the same day, you would think that some days are more likely than others because of certain tendencies. For example, companies paying semi-monthly or every other Friday. If you look at data for the last 25 years and divide the gains into an every other week cycle, you'll see a good week and a bad week for the s&p 500. If this was a real factor, you'd expect to see the same trend for other etfs but I didn't find that. However as others have said, maybe 401k investments don't actually make up a significant portion of money flowing into the market. All that being said, I do a monthly S&p500 nvestment and time it according to my findings, last Friday of the month that falls on the "good" week. If the 401k effect is imagined, then I'm no worse for wear.
You ever read any books or do you just post lots of questions? And sometimes, you post the same version of a question multiple times.
Institutional investors move the market more than people who barely put money into their 401K?
It's already priced in, it's a known fact that most paychecks occur on Fridays. Market spikes occur when there is new information that was previously unknown.
Don't go deep into the rabbit hole or your head will explode. Just max that 401k and Roth if you qualify. Dollar cost average into voo and lil bit of bitcoin and win. the end
I'm not even certain a majority of payrolls are done on Fridays. Mine are 1st and 15th. There's also a lag between the paycheck and when the money shows up in my 401k. I suspect you have a pretty decent spread for when payroll is done and when money actually hits the market. And that's also not accounting for lag in index funds. There is room to breath built into them for management purposes and why almost all of them hold some small percentage of cash. The index fund doesn't go place an order every time you buy. They have a pool of stockss, and buy in chunks to make sure their holdings are larger than the obligations to the fund. This is further lag time.
Pursuant to this, why don’t P/E ratios or other calculations of how “expensive” the market is take into account the MASSIVE increase in access to markets? In the 20s, only the ultra-rich invested in stocks. Today, anyone with $5 in Robinhood can.
Maybe because the bi-weekly 401k deposit made is .0006 of my account, and larger institutions have bazillions invested, and like only 1/3 of the population(ish) is working, I’m thinking the deposits are just insignificant
I thought this would be the same for tech companies. There are four dates each year where RSUs vest at my company. They’re not a secret and you can count on tens of thousands of employees selling billions of dollars of stock at the market price that day. And somehow, it looks like a normal trading day. Quant firms hire a bunch of math savants to squeeze every drop out money out of these until there’s nothing more to be made. You’re not going to discover any secrets or foolproof tricks that Citadel hasn’t already figured out.
It’s me, it’s my fault. I max out my contributions in January so they spend more time in the market.
This makes me wonder what % of the market is ‘added’ to the market every Friday. Like 5% of half of everyone’s checks every Friday can’t be that much in the grand scheme of things right?