Theory Says Don't Sell Your Investments on Monday — Here's Why
Deciding when to buy or sell an investment is a tricky business because it's impossible to predict with certainty where its price will go in the future. But there are certain patterns that suggest some days are better to buy or sell than others. On Monday, for example, you might want to avoid selling investments — especially stocks.
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The reason has to do with the so-called 'Monday effect,' which is open to a couple of different interpretations. Here are more details on this theory and three reasons you may want to consider selling on a different day.
One theory holds that stock prices on Monday tend to follow Friday's actions. It's based on early 1970s research from academic Frank Cross showing that Friday was often the best-performing day for the S&P 500, The Motley Fool reported. In about half of the cases, the index continued to rise the following Monday — and you might not want to sell a stock whose price is still moving higher.
Another version of the Monday effect, cited by VectorVest, suggests that Friday is the best day to sell a stock because you can maximize your return before the weekend. On Monday, that return might be heading in the other direction, so it's not the ideal time to sell.
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Not everyone subscribes to these theories. For those who do, here are three reasons you might not want to sell your investments on Monday.
When the stock markets move higher on Friday, that momentum often pushes into Monday. Proponents of the Monday effect recommend not selling when prices are still on the rise.
As The Motley Fool noted, companies often release bad news after the close on Friday so that it gets hidden away over the weekend, when the markets close. If that bad news causes prices to dip instead of rise early Monday, you should hold off selling until prices stabilize again.
In bear markets, Mondays and Tuesdays tend to be the most volatile, which means stocks fall the most on these days, according to J.P. Morgan Wealth Management. When this happens, you're usually better off standing pat rather than selling or buying.
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This article originally appeared on GOBankingRates.com: Theory Says Don't Sell Your Investments on Monday — Here's Why
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