Upon the unofficial start to summer and the Memorial Day holiday earlier this week, the phrase, “Sell in May and go away… but remember to come back in November” may be a historically uttered phrase. Perhaps the phrase had slightly more significance before super-diversified mutual funds, ETFs and indexes entered the picture, but there are still believers in the concept.
More pronounced are data combining the old “sell in May” theory with the 3rd year of a US Presidential cycle.* Although last year’s late year 2023 gains – so far – cannot touch the strength of 2024 which is the 4th year of a US Presidential cycle.
If you are scratching your head, you are not alone. And as an investor or an adviser doing comprehensive financial planning, most often it is unreliable to adopt popular trends (or memes) as part of an investing strategy. Luck can play a part in the shorter-term, but luck goes both ways, good and bad. Luck is far less of a factor in long-term (after 3, 4, and 5 years) investing.
As for the “sell in May” theory, there are data showing that January and November are two of the strongest months over 50-year periods, with September and October being months where stock market crashes have repeatedly occurred.
But does any of this chatter mean an investor should truly sell in May and buy back stocks in November? No. Why not? Because in the months when stocks are grinding lower, or in times of market stress on the downside, a strategy of reinvesting dividends and rebalancing a portfolio can take advantage of market weakness or volatility and add to long-term performance. This latter strategy relies less on luck and more on the consistency of staying invested, periodically adding monies all year long, year after year – as with a 401k account – while retaining adequate cash reserves to protect the ability to spend.
*Source: Randy Watts, Forbes.com, May 23, 2023.
This material has been prepared for informational purposes only and is not intended to provide, and should not be relied upon for, tax, legal or accounting advice.