Sell in May and Go Away?

A common phrase when investing in the stock market is, “Sell in May and Go Away.” The adage is said to have originated from an old English saying: “Sell in May and go away and come back on St. Leger’s Day.” St. Leger’s Day refers to the day of the St. Leger Stakes, a popular horse race, held in September. Americans eventually adopted it based on the increase in vacation time taken during summer months, and then applied it to an investment approach.

It implies that the months from May to October are the worst performing time periods for the markets, and suggests it’s advantageous to your portfolio to sell the risk assets or equities in your portfolio in May and then reinvest in November. However, this is not a good idea as it requires timing the market and the numbers don’t always work out on your side.

The chart below shows the returns in May over the last decade. As you see, there have been only three negative months with most others outpacing inflation.

Bank of America Merrill Lynch conducted a study in April 2017 and found that going back to 1928 the June-August time period was actually the second-best time period with gains over 63% of the time with an average return of 2.97%. So, the bulk of returns may not come from May, but are better over the long term than staying or moving to cash.

Currently the S&P 500 is up over 5% in May and down only 8% for the year. It is a market cap-weighted index that measures the stock performance of the largest 500 companies in the United States. It is currently comprised of Communication Services, Consumer Discretionary, Consumer Staples, Energy, Financials, Health Care, Industrials, Information Technology, Materials, Real Estate, and the Utilities sectors.

Technology accounts for over 25% of the index, and it is leading the charge to pull the market back from the low set in March when the coronavirus pandemic became a reality.

At Wiser Wealth Management we do not advocate market timing. We are long term investors focused on healthy asset classes. We currently have a tilt towards technology outside of our S&P500 funds through various low-cost ETFs.

The adage “Sell in May and Go Away” may be catchy, but it holds little value or accuracy. Enjoy your summer traveling and spending time with family and friends, but put little faith in this old saying.  If interested in learning more about Wiser and our model portfolios, please visit our website to schedule a complementary consultation or by calling 678-905-4450.

Matthews Barnett, CFP®,ChFC®, CLU®, Financial Planning Specialist