October can be spooky for investors — here's why experts say not to worry


October has a spooky reputation with investors, but experts say there's no need to fear the stock market.

This month has sometimes been horrifying, historically: Over the past century, three of the darkest days on Wall Street all happened during October.

"The big one is October 1987, when the Dow plunged 22% in a single day," says Jason Lambert, the president and CEO of Northwest Financial & Tax Solutions, near Portland, Oregon. That day, now known as "Black Monday," "was the worst single-day drop, percentage-wise, in history."

The Great Depression began after a market crash in October 1929 and the financial crisis that sparked the Great Recession started with an October market meltdown in 2008.

There's another reason October has a bad reputation, says Lambert: "Market volatility, historically, is higher" in October. "Volatility implies fear," he says, "even if it doesn't mean that the market is moving up or down."

Market volatility, historically, is higher [in October]. Volatility implies fear, even if it doesn't mean that the market is moving up or down.
Jason Lambert
President and CEO, Northwest Financial & Tax Solutions

Market volatility is often measured using the CBOE Volatility Index (VIX), which Wall Street pros often refer to as a "fear gauge." On average, stock volatility has been 25% higher in October than in other months.

All the same, here's why experts, and the data, say you don't need to worry about your investments in October.

October's bark may be worse than its bite

The data shows that October actually isn't all that special. "Historically, October is just right about an average month," Ryan Detrick, senior market strategist for LPL Financial, recently told CNBC.

In fact, market performance in October tends to be better than other months, Lambert says, with the S&P 500 gaining nearly 2% on average.

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Those big three events left an outsized impression in the minds of many investors. But they were just that: one-time events. It may be simply a coincidence that they all happened in October.

There's a good reason for the unusual volatility, too. Markets can be more turbulent in October in part because of earnings season and also thanks to the money managers who chase year-end returns.

Spooky markets shouldn't have you running scared

October may be spooky for investors but that doesn't mean you should hide until after Halloween. Even if the markets dip, that may open up an opportunity for you to buy stocks at a lower price. And the turbulence has a way of sorting itself out, especially if your investment strategy stays consistent.

The markets may go up and down with the news cycles, but investors tend to come out ahead in the long run. "Stick to your plan," Lambert says. "You can weather the storm."

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