NEW YORK (MainStreet) — Volatility in the stock market occurs often, and retail investors should disregard whether it affects the returns on their 401(k) portfolio.

Of course, the tendency to read the tea leaves of your holdings is tempting, especially when market upswings seem predictable. For example, enrolling automatically in your company’s 401(k) plan means the monthly or bi-weekly investments tend to coincide with the deductions from your paycheck. Although millions of employees are paid on a similar schedule of the beginning, middle and end of the month or just once a month, the timing doesn’t -- as many assume -- affect the returns of your retirement portfolio, said Jeff Sica, CIO of Circle Squared Alternative Investments in Morristown, N.J.

“The volume from having employees who have their paychecks deducted automatically into a retirement account is a microcosm of the entire volume and is not as much as people think,” he said “It is not enough money to move the market and less than 10%.”

Institutional players such as mutual funds, pension funds and hedge funds move the market because of the immense volume being invested, so retail investors should be more concerned about how long they are investing in the market and not divesting assets too soon. The number of times you invest each year is not relevant either, Sica said.

“Dollar cost averaging works over the duration if you are investing consistently,” he said. “It doesn’t matter if you invest once a week, monthly or quarterly. It’s the duration of the time you stay in the market that benefits you the most.”

Timing Isn't Everything, But It's Something

While the volume invested in auto-enrollment programs is not a big deal, these surges in contributions do play a factor in the bigger picture, said Matt Tuttle, CEO of Tuttle Tactical Management, a Stamford, Conn. company that provides customized tactical ETF-based investment strategies and exclusive asset management. The market typically has a “large move” on the first day and/or the last day of a month and is typically positive or “up.” Of course, it all depends on the overall trend and what economic or other indicators preceded it, Tuttle said.

“This money flows into the market along with window dressing by portfolio managers, especially around when the quarter ends,” Tuttle said.

The first two trading days of the month are typically “stronger” days and auto-enrollment is one of many factors where it creates a situation to make those days positive. Portfolio managers also are rebalancing on those two days.

“Any manipulation going on in the market hurts the average American,” he said.

There is a well-documented turn of the month effect in the stock market where returns are higher during the last trading day of the month and the first three trading days of the month. This effect is not limited to U.S. equity markets and has shown to be pervasive in international markets, said Robert Johnson, President and CEO of The American College of Financial Services in Bryn Mawr, Pa. Many analysts credit the turn of the month effect to infusions of cash into pension funds and other retirement accounts.

“While I haven’t seen any documented research to support a ‘payday effect’ in the stock market, the bottom line of the research on the January effect and the turn of the month effect is that the timing of cash flows matters to market prices,” he said. “If cash systematically flows into or out of the market at specific times on the calendar, stock prices will be driven up or down due to simple supply and demand considerations.”

Still -- Hold Course

Employees should not focus on current trends in the market and pay more attention to “what is going at the moment” and where the market is heading fundamentally, Sica said. Essentially, he said, trends are true until they're not. 

“You can’t outguess the market," Sica said. "Don’t worry about what the market does and buy index funds and conservative investments and diversify.”

--Written by Ellen Chang for MainStreet