Many investors have heard this saying before; the idea is to sell out of the market on May 1st and get back in on October 1st to avoid the summer months of lower returns.
Below is a great chart from JP Morgan, with return data on the “Sell in May” idea, using a 60% stock / 40% bond portfolio. The top line (blue) remains invested over time, and the bottom (green) line sells in in May and goes away. As you can see, you are much better off staying invested. The chart also doesn’t take into account transaction fees nor Uncle Sam getting his piece of the pie from selling every year! (This would make the green line even lower.)
In the investment books, they call this the “calendar effect”, and there are plenty more where that came from. Some of them are downright comical. Here is a good list: January Effect, Market Timing, July Effect, Seasonal Adjustment, The Congressional Effect, Santa Claus Rally, Super Bowl Indicator, and Lunar Effect. As we have mentioned many times on this blog and newsletters, the data overwhelmingly points to staying invested and staying the course.
On a side note, I’m so excited to join Financial Synergies! I’m looking forward to meeting everyone and working with you on your financial plan soon.
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