Should You Take a Summer Vacation From Your Investments?
There’s an old saying you’ve probably heard that gets repeated every year in the spring and early summer that goes “Sell in May and Go Away.” But is that good advice? What’s the best thing for you and your investments over the historically slower summer months?
The phrase sell in May and go away is thought to originate from an old English saying, "Sell in May and go away, and come on back on St. Leger's Day" (pronounced “ledger”). This phrase refers to a custom of upper class aristocrats, traders and financiers who would leave London to spend the summer months in the country. Specifically, it refers to the St. Leger's Stakes, a thoroughbred horse race held in mid-September.
It turns out that the saying is based in solid analysis - From 1950 to around 2013, the Dow Jones Industrial Average has had an average return of only 0.3% during the May to October period, compared with an average gain of 7.5 percent during the November to April period, according to Forbes.
But, since 2013 there’s good reason to believe that’s no longer the case. For example, the S&P 500 rose nearly 7% from the beginning of last May through the end of October, according to YCharts. The blue-chip index was up 5% during May through October of 2016 as well. The market did fall in the May-October period of 2015 because of concerns about China. But the S&P 500 enjoyed a 7% pop from May-October of 2014, a 10% gain in May-October of 2013 and even eked out a small gain in 2012's May-October period as well.
And by the way, there’s also no pattern on or around the 4th of July, which I know we’re celebrating this week. According to a study by bigtrends.com of the last 63 years, the average return for the 10 days around the 4th (5 before and 5 after), the average return is about .03% (transition to chart), as you can see here so while we’re not losing anything, it’s probably not a return most investors are bragging about either!
So that may leave you asking what you can do. The first thing to remember is that if you’re diversified, and rebalancing regularly, your portfolio should be set up to do well over the long range, and you shouldn’t be making sudden changes.
That having been said, instead of selling in spring or summer, some analysts recommend rotation. This means that investors – rather than selling – would instead vary their portfolios and look for products that may be less subject to the traditionally slow growth in the markets during the summer and early fall.
If you have questions, we can help. We offer a free, no-obligation consultation. You can schedule your appointment today by calling us at 216.521.1711, emailing us at Quarterback@Lineweaver.net, or by clicking here.
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