Some investors think the market is less of a good bet in summer months. There’s even a saying on Wall Street—“sell in May and go away”—that suggests avoiding the market altogether until after September.
That’s largely because the stock market can experience lower trade activity in the summertime, since a lot of people go on vacation, and because there have been some memorable summertime slumps. In the weeks surrounding the stock market crash in China in 2015 and the surprise Brexit vote in 2016, the U.S. stock market lost more than 5%, for example.
Overall, though, the data shows that summer can actually be a great time to invest.
Debunking the myth
The idea that summer is a weak time for the market didn’t hold true for the past two years, points out Brad McMillan, chief investment officer at Waltham, Massachusetts-based Commonwealth Financial Network. The S&P 500 rose almost 6% between May and September in 2017 and it rose 10% in 2018.
Combined, the months of June through August have experienced cumulative average returns of 2.9% since 1928, according to data from Yardeni Research. The only three-month stretch that has performed better is November to January.
Besides, taking money out only to put it back in a few months later isn’t a great strategy. Experts suggest you do the opposite in order to take advantage of what’s known as dollar-cost averaging, which means regularly adding money to your portfolio throughout the year to smooth out the price you pay for investments over time.
How to invest during the summer
Consistency is key to success when investing for the long haul, so you shouldn’t alter your long-term investing strategy based on what month it is. Still, sometimes what’s happening in the broader market can be a good reminder to do a portfolio checkup—reevaluating your broader investment objectives and deciding whether your current investments still make sense—to ensure you’re on track to meet your goals.
Also, you can also look out for good bargains.
For long-term investors, the concerns that might shake up the market—including the U.S.-China trade spat and possible military action between the U.S. and Iran—can create an opportunity, says George Young, a partner and portfolio manager at Villere & Co. in New Orleans. If the market gets bumpy, or there’s a return of the summertime malaise, you may be able to buy investments on your watch list at lower prices.
McMillan says to keep your long-term goals in mind whenever short-term bouts of bumpiness arise: “By buying cheaper, you lower the average cost of your whole portfolio, which will help returns over time.”
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May 27, 2019