𝙱𝚎𝚜𝚝𝚎𝚛 𝚂𝚙𝚊𝚛𝚙𝚕𝚊𝚗 𝙰𝚞𝚜𝚏ü𝚑𝚛𝚞𝚗𝚐𝚜𝚝𝚊𝚐?

Because the question always comes when is the best day for the savings plan. First, the bad news: the execution day plays only a minor role. What is essential is the rate. Second bad news, this is not relevant for individual stocks, let @leveragegrinding wash your ears.

The theoretical consideration is of course that markets go up on average so and so much percent pa. That is broken down it is then so and so by ~250 trading days. According to this, it would be best to throw your money into the market as quickly as possible.

But of course markets do not work like that. Unlike Madoff Funds, indices do not go up like a diagonal line. Every now and then they go down and eventually they go up again. So the question is, can you anticipate when it will go down and when it will go up?

For this there are now 2 options look into the past or look into the future. Since I do not have a crystal ball, I can only look into the past. Here it is important to note:

𝐩𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨𝐭 𝐢𝐧𝐝𝐢𝐜𝐚𝐭𝐢𝐯𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬

(please imagine this sentence psychedelically flashing so you don't forget it).

Further, of course, you have to consider what time period you are looking at. The further back in time you go, the less the market environment has in common with today's conditions. The next question is a found effect so large that it makes a relevant difference, to you. (and idR the next question could one build a trading strategy on it, that after costs, makes profit?)

A nice simulation can be seen here [1]. The years 2010 to 2021 have been included. The first of the month performed best. However, the author himself writes "In particular, the strong bull market since the Corona flash crash in March 2020 makes the 1st execution day shine." However, the performance loss was not huge at 1.08%. This is a difference that can occur with poor broker selection already due to costs.

𝚆𝚊𝚛𝚞𝚖 𝚔𝚞𝚛𝚜𝚒𝚎𝚛𝚝 𝚍𝚒𝚎 𝙴𝚖𝚙𝚏𝚎𝚑𝚕𝚞𝚗𝚐 𝚖𝚒𝚝𝚝𝚎𝚗 𝚒𝚖 𝙼𝚘𝚗𝚊𝚝 𝚣𝚞 𝚒𝚗𝚟𝚎𝚜𝚝𝚒𝚎𝚛𝚎𝚗?

For those who want to take a stab at the literature in the English language, the keyword is turn of the month effect. The effect describes the observation that certain days perform stronger than others. Usually the last trading day of a month and the first three of the following month are taken for this effect. Investopedia says:

𝘛𝘶𝘳𝘯-𝘰𝘧-𝘵𝘩𝘦-𝘔𝘰𝘯𝘵𝘩 𝘌𝘧𝘧𝘦𝘤𝘵: 𝘛𝘩𝘦 𝘵𝘶𝘳𝘯-𝘰𝘧-𝘵𝘩𝘦-𝘮𝘰𝘯𝘵𝘩 𝘦𝘧𝘧𝘦𝘤𝘵 𝘳𝘦𝘧𝘦𝘳𝘴 𝘵𝘰 𝘵𝘩𝘦 𝘵𝘦𝘯𝘥𝘦𝘯𝘤𝘺 𝘰𝘧 𝘴𝘵𝘰𝘤𝘬 𝘱𝘳𝘪𝘤𝘦𝘴 𝘵𝘰 𝘳𝘪𝘴𝘦 𝘰𝘯 𝘵𝘩𝘦 𝘭𝘢𝘴𝘵 𝘵𝘳𝘢𝘥𝘪𝘯𝘨 𝘥𝘢𝘺 𝘰𝘧 𝘵𝘩𝘦 𝘮𝘰𝘯𝘵𝘩 𝘢𝘯𝘥 𝘵𝘩𝘦 𝘧𝘪𝘳𝘴𝘵 𝘵𝘩𝘳𝘦𝘦 𝘵𝘳𝘢𝘥𝘪𝘯𝘨 𝘥𝘢𝘺𝘴 𝘰𝘧 𝘵𝘩𝘦 𝘯𝘦𝘹𝘵 𝘮𝘰𝘯𝘵𝘩. [2]

Even as a savings plan ETF buyer, you want to buy as cheaply as possible. So buying on the most expensive days (statistically speaking) would be bad. How big this effect is depends of course on the observation period, see above or also the '10 - '21 simulation.

The obvious question is, why is there such an anomaly and why is it not traded away? Explanation attempts are many, but no comprehensive explanatory model has been found in the scientific discourse (yet?). Probably it is an overlapping of different factors that exist consistently and in different markets / countries. It is obvious that money inflows from pension funds and other investors with monthly cash inflows are a significant part of the effect.

The question why it does not disappear by exploitation is equally difficult to answer. The effect has been known at least since the mid-1970s. It is a matter of statistical differences. Even if they are significant, they are not automatically easy to exploit. In the study Iakonishok and Smidt did in 1988 the Dow Jones 1897-1986 was evaluated. [3] The average price increase for the 4 day period was 0.473%. An average 4 day period has a price increase of 0.0612%. The difference is statistically significant. The average increase for an entire month was 0.349%. Thus, the Dow Jones virtually only loses over the remaining days of the month.

If we subtract the average month from the 4 day period, we are left with a difference of 0.124%. Thus, with $1 million of capital investment, one could "skim" $1240 of difference, before trading costs and tax. In addition, of course, there is still the risk of being wrong. Because these are only averages and in contrast to milk averages you cannot eat averages, if the trade, contrary to the statistics, does not work out and you have gambled away your house, yard and refrigerator.

Xu and McConnell could prove the effect 2006 likewise for 1987 - 2005. [4] There is also a study for 1963 - 2008 [5]. There is also evidence that the effect weakens over time (1991 - 2008) [6]. So now you might get the (not very new) idea of taking advantage of this effect and sitting out the rest of the month. Here, we should again refer to milk averages instead of averages. Although one would not have a real total loss risk with a pure index investment, there is the danger that one misses good trading days outside the window, thus one would have arrived at the classical buy high, sell low. If you now garnish the trading idea with levers and the total loss risk, then you are as far away from our actual topic as many traders are from the profit zone.

𝙰𝚕𝚜𝚘 𝚠𝚊𝚗𝚗 𝚜𝚘𝚕𝚕𝚝𝚎 𝚖𝚊𝚗 𝚗𝚞𝚗 𝚍𝚎𝚗 𝚂𝚙𝚊𝚛𝚙𝚕𝚊𝚗 𝚊𝚞𝚜𝚏ü𝚑𝚛𝚎𝚗 𝚕𝚊𝚜𝚜𝚎𝚗?

If you want to have an advantage historically (see the flashing sentence), you invest at mid-month. That the difference is not big (if it still exists) should be clear to everyone. You remain invested as a buy & hold investor with the remaining capital, because you assume (over time) Number go up.

You can also find good reasons to invest your money immediately. You do not invest in historical markets, but in future ones. Money that is available for a week or two tempts you to spend it. You could invest after the ex-date of the ETF and miss a part of the payout etc pp. Also think again of the flashing phrase, if the markets should only go sideways for the next 50 years (yes very unlikely) or the new market motto will be stonks only go down, then these considerations are for the bucket anyway.

With all the optimization do not forget, in the end it depends on your rate. 1000€ are better than 100€ and 100€ are better than 0€.

[1] https://www.jantau.com/post/sparplantag/

[2] https://www.investopedia.com/articles/stocks/08/market-anomaly-efficient-market.asp

[3] http://www-2.rotman.utoronto.ca/~kan/3032/pdf/AssetPricingAnomalies/Lakonishok_Smidt_RFS_1988.pdf

[4] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=917884

[5] http://summit.sfu.ca/item/655

[6] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1958587