money·2 min read

Should I Be Worried About a Stock Market ‘Summer Slump?’

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Design: theSkimm | Photo: iStock
May 10, 2022

“Sell in May and go away” is a popular warning in financial circles. Because, based on past performance, the stock market tends to give lower returns between May and October.And some investors use the saying as an investment strategy blueprint.

What’s the backstory?

Legend has it, the saying is based on the idea of London aristocrats and bankers leaving the city for summer vacation. Today, American traders and investors follow a similar pattern. Hint: The period between Memorial Day and Labor Day is still a popular vacay time frame.And, for a while, the stock market has taken a hit while investors go away on summer vacation.

Got it. Adding ‘sell stocks’ to my to-do list.

Not so fast. Here’s why the rhyme doesn’t work as a hard-and-fast investing rule: It’s an attempt to time the market, which is unpredictable. Not a good idea.A better strategy: Sell your investments when you’re ready to cash out to hit your money goals.

So I shouldn’t worry about a stock market summer slump?

Based on the stats, not so much. For years, the Dow Jones Industrial Average posted lower returns from May to October than it did from November to April. But not anymore. These days, investors who stick to the old summer rules may be missing out. 

What am I missing out on in the summer?

Pretty strong returns. Between 2010 and 2020, the only year the rule benefited investors was 2011. All the other summers ended with gains, and experts noticed. In 2021, JP Morgan Wealth Management advised investors to break the rule to sell in May. And ETF investors who listened ended the summer with a 9.6% gain on average. Not bad.

But keep in mind, those summer gains happened during a very long bull market(psst…that’s the good kind of market when stock prices are going up). Read: same results not guaranteed. So don’t bet your portfolio on one winning season. Investing for the long term and focusing on achieving your personal financial goals is a smarter way to build your wealth…even though it doesn’t rhyme.

theSkimm

“Sell in May and go away” is a rule that has benefited investors for decades. But not anymore. Based on the returns from recent years, experts say the old rule isn’t worth following. 

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