Money·3 min read

The October Effect: Should You Buy Into This Scary Market Theory?

October Effect
Oct 7, 2021

The Story

We're not saying investors are superstitious, but they are a little stitious. Meet the October Effect, aka the perception that stock prices are destined to fall this month.

Is it for real?

October has a bad rap for market crashes: the Panic of 1907, Black Monday in 1929, and Black Monday in 1987. But one report shows that, on average, it's actually a pretty good month for stocks. Since 1928, stock values have increased in 54 Octobers vs. 39 when they dropped. If we were handing out superlatives, September – not October – would win "most likely month to see stocks fall."

So I’m NOT losing money this month?

Hard to say. October may be historically good for stock values, but there’s no way to predict what the market will do in any given month. Many factors influence stock prices and returns – from the unemployment rate to inflation, trade wars, and the Fed.

And if stock prices drop, it could be a self-fulfilling prophecy. Read: some investors get nervous about the October Effect and sell shares early in the month, driving prices down. Then others notice the trend and do the same, amplifying the effect. BTW, this is known as bandwagon bias. It’s one of several mental biases that can cost you money.

What should I do when stock prices go down?

When it comes to investing, the best action is often (*drum roll*) no action. Stock prices go up and down all the time. That's normal. Dramatic highs and lows shouldn’t impact your long-term goals, like growing your net worth or prepping for retirement. So regardless of what month it is, keep your eyes on the future and hold steady. Because over time, throughout history, overall stock prices have kept marching up.

When do I sell my investments then?

When you’re ready to check a money goal off your to-do list. Like sending a kid to college, buying a home or heading OOO permanently. Unless your goals change (or you really need the money), try to stick it out until you hit them.


The October Effect is the spooky idea that investors will lose money this month. But like ghosts and goblins, it has more to do with fear than reality. Pro tip: don't get scared into bad investing moves. If you're investing for the long term, ignore stock-market superstitions and stay the course.

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