What is the best day to invest in the financial markets ?

Many investors apply the Dollar Cost Averaging (DCA) strategy but few really know how to properly implement it.

If you are not familiar with this investment strategy, here is its definition on Investopedia:

Dollar-cost averaging involves investing the same amount of money at regular intervals over a certain period of time, regardless of price.

Photo by Samson on Unsplash

In practical terms, if you decide to follow this strategy, you will invest part of your monthly salary in the financial markets every month.

2 questions then arise:

• What to invest in?
• On which day of the month is it best to invest?

We will only address the second question in this article based on the analysis of financial data.

What day of the month is best to invest?

1. The assumptions of the study

• A monthly investment of 100 euros per month for 51 years (from January 1, 1971 to December 31, 2021).
• Investment product: S&P 500 (Although this index is only American, it is probably the most followed index in the world and shows the health of the world financial markets).
• 28 possible outcomes (the first 28 days of each month). This choice was made because it is the smallest number of days common to all months.

2. Data collection:

• Here we use the Yahoo Finance API to collect daily quotes of the S&P 500 index between 1971 and 2021.

3. Computation method:

We then calculate the total value of the investment according to the 28 possible scenarios:

• 1) Investment of 100 euros every 1st of the month during 51 years.
• 2) Investment of 100 euros every 2nd of the month during 51 years.

…

• 28) Investment of 100 euros every 28th of the month during 51 years.

4. Here are the results:

DCA strategy in the S&P 500 based on the day of month chosen to invest.

We notice that the total value of the investment is higher for investors who choose to invest a regular amount at the end of the month rather than at the beginning of the month.

5. Possible explanations:

This may be explained by the fact that many people invest in the financial markets at the beginning of the month (just after receiving their salary) and therefore artificially increase the price of shares.

At the end of the month, as people have less liquidity, they invest less and therefore make the price of shares fall. It is then a good time to invest.

Here are the details of the results sorted in descending order:

The 3 winners are: the 24th, 25th and 27th day.

6. Conclusion:

According to this analysis, the best day to invest in DCA is the 24th day of the month.

Generally it seems better to invest at the end of the month.

Obviously this article is just my simple analysis and is not an expert advice.

If you liked this analysis, follow me, I regularly publish analyses made around data. Thanks 👏👏

Pierre-Louis D.