Does the old Wall St. adage of “sell in May and go away” really work? We will cover that in a moment, but first we think it is more important to focus on a key point – It doesn’t make sense to try and time the market over such a short period of time in the first place.
A prudent investment approach should be based on your goals for your assets and a longer-term outlook for the markets, not on a historical adage and set of data that may or may not have much predictive power. A strategy that works only sometimes and has no basis on the current market environment is probably not good enough to drive investment decisions for your portfolio.
The “sell in May and go away” strategy certainly did not work last year. In the May – October period, the market rallied +10%:1
S&P 500 from January 1, 2013 – December 31, 2013
(Click chart for larger version)
Source: Federal Reserve Bank of St. Louis, S&P Dow Jones Indices LLC.
Where Does the “Sell in May and Go Away” Strategy Come From?
It dates back to the days when London’s financial center, “The City,” used to virtually grind to halt in the summer time as stockbrokers would take time off to attend events like Wimbledon and horse-racing at Ascot. The market would have thin trading volume and muted returns.
Today, the adage lives on because historical data shows that stock market returns during the six month stretch of May – October have been weaker than any other six month stretch in a given year. According to Bank of America Merrill Lynch, since 1928 the May – October span has delivered an average return of 1.9%, while the strongest six month period is November – April with average returns of 5.1%.1
The May – October period may not be the strongest six month period historically, but it’s still positive on average! There’s little sense on potentially missing out on returns just to follow an old Wall St. saying.
Stay Focused on Your Longer-Term Investment Plan
Your portfolio’s allocation should reflect your objectives for your assets, and should have money manager strategies designed to participate in growth while protecting the assets from downside volatility where possible and if appropriate. One of our Wealth Managers can analyze your investment portfolio and show you any areas for improvement or adjustment. Give us a call at 1-800-541-7774, or get started by answering a few questions here.
The S&P 500 Index is a market capitalization-weighted index, composed of 500 widely held common stocks, including reinvestment of dividends, that is generally considered representative of the US stock market.
