The stock market adage “Sell in May and Go Away” refers to the practice of selling out of the market in May and waiting until October to re-enter. In the past few years, there have been some market hiccups around this time. Seems that warmer weather has encouraged Europeans to protest in recent years. However, investors still wonder if it holds true in this economy.
Looking at it long term, if you had invested $100 for the past 25 years with compounded interest at 7.25%, you would accumulate $584.81. However, if you sold in May and re-entered the market in October during the last 25 years, you’d only have a loss opportunity of 55 basis points annually. After 25 years, you would have had $514.32—only 12.05% less than had you stayed invested the whole year.
Additionally, looking back to 1950, September has more traditionally been a difficult month for the stock markets. The market is not always down between May and October. It comes down to trying to time the market. Not only do you have to know when to sell, but you also have to know when to buy. Guessing absolutely right twice is next to impossible.
If you missed the 10 best days in the Dow Jones Industrial Average’s return in the last 109 years, you would wipe out two-thirds of the index’s cumulative returns. Likewise, if you missed the 10 worst days, you would triple the Dow’s return. These 20 days represent 0.0007% of the trading days.
At Henssler Financial we believe you should Live Ready, which includes understanding how difficult it is to time the market. The summer months are generally slow, and the markets can get a bit boring. However, if you were to sell out of the market for five months, you would miss July, which is traditionally a strong month for the market. If you have questions regarding your buy and sell strategy, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at experts@henssler.com.