Investing

Why January is a particularly great time to invest your money

Twenty/20

Over the past 90 years, the S&P 500 index has risen an average of 1.2% in January, according to Yardeni Research, making it one of the best-performing months for investors.

Investing pros even have a term for the market's tendency to rise at the start of the new year. It's called the "January effect."

Researchers have been studying the January effect for decades and have largely found that the effect does occur regularly. "Markets tend to perform better in January," says Jason Lambert, the president and CEO of Northwest Financial & Tax Solutions near Portland, Oregon.

The effect is a phenomenon similar to the "Santa Claus rally," a seasonal rise in the markets often observed during the last two weeks (final 10 trading days) of the year, fueled by a large volume of year-end trading, the busy retail season, and investor enthusiasm.

January's increase is distinct, though, Lambert says: It's not just leftover Christmas magic from a Santa Claus rally.

Several underlying factors tend to help boost the markets at the beginning of the year. "It's [partially] credited to retail numbers," he says, and a surge in seasonal hiring.

Markets tend to perform better in January.
Jason Lambert
President and CEO, Northwest Financial & Tax Solutions

Given the strength of the economy during the 2019 holiday season, many experts are expecting a high likelihood of a January effect in 2020. They also expect the markets to keep rising throughout the year — although at a slower pace than last year.

Investors also tend to be more active than usual right after New Years, which can drive up the markets. Lambert says that in December, many investors engage in a process called tax-loss harvesting, in which they sell some investments to claim a loss on their taxes. Then in January, they reinvest. That surge of money into the market can boost stock prices.

Keep saving and investing consistently

Although research has found the January effect is real, experts say the best thing the average investor can do is to be aware of, but don't pay too much attention to, seasonal market movements. "You don't want to put too much stock in any of them," Lambert says.

Instead, he says, stick to your predetermined strategy of saving and investing regularly and for the long term. That kind of consistent, buy-and-hold approach means you don't have to worry about the day-to-day fluctuations in the markets, and it can pay off, big time: The long-term historical average annualized return for the U.S. stock market is almost 10%.

A $500 investment in the five major U.S. benchmarks 10 years ago would now be worth anywhere from about $1,500 to more than $2,400.

Nowadays, investing is cheaper and easier than ever for ordinary investors. And given that we're at the start of a new year, this is a great time to establish the good financial habits that can be even more powerful than the January effect.

More from Grow:

acorns+cnbcacorns cnbc

Join Acorns

GET STARTED

About Us

Learn More

Follow Us

All investments involve risk, including loss of principal. The contents presented herein are provided for general investment education and informational purposes only and do not constitute an offer to sell or a solicitation to buy any specific securities or engage in any particular investment strategy. Acorns is not engaged in rendering any tax, legal, or accounting advice. Please consult with a qualified professional for this type of advice.

Any references to past performance, regarding financial markets or otherwise, do not indicate or guarantee future results. Forward-looking statements, including without limitations investment outcomes and projections, are hypothetical and educational in nature. The results of any hypothetical projections can and may differ from actual investment results had the strategies been deployed in actual securities accounts. It is not possible to invest directly in an index.

Advisory services offered by Acorns Advisers, LLC (“Acorns Advisers”), an investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”). Brokerage and custody services are provided to clients of Acorns Advisers by Acorns Securities, LLC (“Acorns Securities”), a broker-dealer registered with the SEC and a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Acorns Pay, LLC (“Acorns Pay”) manages Acorns’s demand deposit and other banking products in partnership with Lincoln Savings Bank, a bank chartered under the laws of Iowa and member FDIC. Acorns Advisers, Acorns Securities, and Acorns Pay are subsidiaries of Acorns Grow Incorporated (collectively “Acorns”). “Acorns,” the Acorns logo and “Invest the Change” are registered trademarks of Acorns Grow Incorporated. Copyright © 2019 Acorns and/or its affiliates.

NBCUniversal and Comcast Ventures are investors in Acorns Grow Incorporated.