Are you an investor looking to invest in the stock market? Understanding the best day of the week to buy shares can increase your chances of earning better returns.
Let’s explore the day of the week that’s traditionally thought to be the best for buying shares and why.
Which is the best day to buy shares?
Stock markets are typically open for five days a week, excluding some bank holidays. So which day of the week is the best to buy shares? Well, according to some experts, that day is Monday.
Historically, studies have shown that stocks tend to drop or produce lower than average returns on Mondays compared to other days of the week. This is known as the ‘Monday effect’. There are several theories that attempt to explain this phenomenon.
One theory points to the fact that some companies will purposefully release negative news that may affect their stock prices on Friday or over the weekend.
They do this in the hope that it will give the market time to absorb the news before trading resumes on Monday. They may also do it in the hope that it will receive less media coverage and investor attention as most people will be taking the weekend off.
Of course, bad news will decrease investor confidence. This can lead to a sell off on Monday when the markets reopen and a drop in share prices.
Others believe that the Monday effect stems from investors’ pessimistic outlook on the start of a new workweek.
The Monday effect essentially means that you can buy new shares for your portfolio at a discount. That way, you can essentially set yourself up nicely for good returns once the market starts going up.
Is trying to time the market a good idea?
Timing the market may sound like a good idea in theory, but it doesn’t always work. There are days, such as some Mondays, where you may think that shares will end up trading lower than usual, only for them to do the exact opposite.
Rather than trying to time the market, it’s better to invest steadily over time, using a strategy like pound-cost averaging (also called dollar-cost averaging in the US).
What makes this strategy effective is that you’ll essentially be buying shares at different prices at different times. In the end, you are likely to pay a lower average price for your shares than you would if you tried to buy them at just the right time.
You’re also likely to avoid losing out on potentially great deals. Indeed, it is not uncommon for investors to become so preoccupied with finding the best possible time to buy particular shares that they miss out on other excellent buying opportunities.
The pound-cost averaging method also takes fear and emotion out of investing and encourages good decision making.
Remember that when it comes to investing, there are no guarantees. So make sure that you conduct sufficient research before you part with your money.
If you are completely new to the concept of investing in stocks and shares, you should check out our comprehensive investing guide to get started.
Otherwise, if you are already familiar with this concept and are ready to dive in, take a look at our comparison of some of the top providers of online share dealing accounts in the UK.
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