If the vast majority of companies pay their employees according to a schedule and part of that money immediately purchases shares for their 401(k) accounts, do traders trade based on the predictability of this scheduled influx of cash?
For anyone that has a 401(k), it is likely that the elected percentage of gross or net salary is taken automatically from each paycheck and invested in the stock market on a scheduled and predictably repeated basis. If the vast majority of companies pay their employees according to a schedule, whether be it weekly, bi-weekly, or semi-monthly, and that money immediately purchases shares, do traders trade based on the predictability of this scheduled influx of cash?
While I certainly cannot speak for traders, I wouldn't think this would be a profitable strategy. First, not only are workers paid on different schedules, employers actually deposit the 401k withholding at their own schedule (within certain guidelines, of course). You and I could be paid on the same date, but your 401k contribution is deposited into your account within a few days and mine may not post until possibly the 15th of the next month! This variation would make it nearly impossible for traders to time. Secondly, many workers (too many, in fact) invest in money market funds, cash accounts, bond funds of all varieties, stable value funds, etc. There are many options besides equity investments. Again, these variations would make it impossible (in my opinion) for a trader to use the his/her advantage.
When you have funds available to invest, do so! Don't worry about schemes to time the market. None that I have ever seen work on a consistent basis. Develop a plan for yourself that based on solid principles.
Thanks for the question!
There are some traders who do look at and use these inflows. I can tell you that we simply see those bi-weekly inflows as adding some support to the markets. But overall price & volume along with a few other technical indicators for shorter term movements in the markets.
Hope this helps and best of luck, Dan Stewart CFA®
Most companies have a large enough float (shares of stock outstanding) that it wouldn't have much of an impact. If it is a very small company it may have a bit more of an impact but even that would be hard to
trade on. I would focus on trading stratgies that have technical momentium more than timing retirement plan share purchases.
Best of luck!