There is an old stock market saying, “Sell in May and go away.” Traditionally, the summer months are slow, perhaps because a lot of investors are on vacation and are not trading stocks. This summer proved that theory wrong – since Memorial Day (and as of last Friday) the S&P500 Index has risen 13% and the NASDAQ is up 17%.
Another theory says that October is the worst month to invest. Proof is offered by the stock market crash of October 1929 as well as “Black Monday” in October 1987. And, in fact, the top three one-day dips in the Dow Jones occurred in October. It is easy to see why investors would be very wary of the month in general. The two events above, which stand out in people’s minds, give October its reputation. The month with the worst average monthly returns however is not October – it is September.
Should you sell out in September, or October? Certainly not. While these months sometimes do present a struggle for investors, the following months of November, December and January have the highest historical average returns. In addition, transaction costs and taxes on any sales would reduce gains, or increase losses, of selling one’s investments.
Remember what Mark Twain said: "October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February."
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