Timing 401(k) Investments

During volatility, buying funds in the morning vs. evening can make a difference.

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Dear Alpha Consumer,

Do you know if my biweekly 401(k) contribution (on my paydays) is invested based on the market price of mutual funds at the beginning of the day or the end of the day?   I know that normally one shouldn't be concerned about such things, but when the market swings up or down by 7 percent on a given day, it can make a difference.

When the market ends up 9 percent one day and down 5 percent the next, it's hard not to be concerned about the timing of investments. I asked Fidelity, the country's largest retirement plan administrator, when, exactly, 401(k) money from paychecks gets put into the market.

Spokeswoman Sophie Launay explains that it's a two-step process: First, your company must send the retirement plan administrator information about your employee contribution as well as the money. (While this process sounds straightforward, it doesn't necessarily always happen on payday itself, so unless you ask your company, you may not know which day the money is transferred over to the plan administrator.)

Second, as soon as the plan administrator receives the information and the money, it invests it at the next available "net asset value" of the fund, which is usually determined at 4 p.m. eastern time each day, at the close of the market. If Fidelity receives the information before 4 p.m., then investors receive that day's closing price. If it's after 4 p.m., investors receive the next day's price.

Since it's impossible to predict whether the day's closing price will be up or down, personal finance advisers recommend regular investment through a vehicle such as a 401(k), without concern for the day's prices.