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Successful Summer Investment Strategy

posted on

May 01, 2014

Seems like everywhere an investor turns today we hear or read about the age-old market advice to “sell in May and go away!” Is this truly valuable investing wisdom and can it make a difference in helping you achieve your personal financial goals? 

One article provides this statistical information: 
“Over the last 40 years, the S&P 500 Index has averaged a gain of 7.56% from November through April and has been positive 80% of the time. From May through October, the average return is just 1.74%, with 67% of them positive.” (Rocky White, Schaeffer’s Investment Research)
Another long time market forecaster, Mark Hulbert, pointed out that the first half of that time frame – the May through July period – has actually been very smooth sailing on average over the past 40 years compared with the latter part of the period. (Barron’s, 4/28/2014) This new data would suggest that maybe the old mantra should be updated to “sell in August”! Before you take this new advice to the bank, Hulbert threw in the caveat that during the past nine years, the May – August period has only been positive 33% of the time and actually has a slightly negative average return. So what are you telling us to do Mark?
To further complicate matters, Simon Maierhofer, founder of iSPYETF.com, made these observations: “the stock market tends to be weak from April to June in midterm election years. Important at this point is capital preservation and eventually re-establishing some exposure for the year-end rally, which may turn out to be the last leg of this bull market. There are some bearish divergences indicative of a slowing trend but not the kind of divergences usually seen right before major market tops.” (Investor’s Business Daily, 4/28/2014)
Those words certainly have the ring of sophistication and market know-how but is it really useful information? Remember the old “Simon says” game we played as kids? Simon says we should jump out of our investment strategy today, sit down, twirl about and then leap back in right before the end of the year! Something tells me this may not be a viable long term way to accomplish my investment goals.
What about the tax implications of such a move? What about the trading costs of following this strategy? And when exactly do I get back into the market?

Allow me please to pass along my advice for the May through October time period. Schedule a meeting with your financial advisor and take inventory. Discussing your long term strategy during this relatively stable market environment rather than during a turbulent and emotional period is the perfect time for a good assessment. What is the least amount of risk we can take and still accomplish our long term goals? Is the portfolio properly allocated across all asset classes? Is each one of our investments performing in line or better than its relative benchmark? Do we have enough money set aside to meet monthly obligations during the next year? Once these questions have been affirmatively answered, move on to enjoying this beautiful time of year and rather than watching and reading about the stock market, spend some time watching a good old fashioned baseball game!