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Sell in May...or Not!
It’s that time of year again. Flowers are blooming, birds are singing and market gurus are bombarding us with ‘Sell in May & Go Away’ strategies. This is the season that the financial media is literally saturated with stories, reports and data explaining why investors should heed this age-old stock market adage…or not.
The gist of ‘Sell in May’ goes something like this: the stock market underperforms during the May-through-October months, with most or all of its gains coming in the November-through-April months. Selling stocks in May would – in theory – keep an investor’s portfolio from losing money during that time period. Buying stocks again in November would – in theory – enables the investor’s portfolio to reap the gains from that time period.
Sounds pretty simple, huh? Does it work? Well, it depends…
There are a lot of smart folks on either side of the ‘Sell in May’ debate. They eloquently lay out their opinions backed up by tons of impressive facts and figures. Their arguments are so convincing, it’s hard to decide which ones are right!
Now, whenever we run into market controversy of any kind, we know we can go to the charts to get a clearer picture of what’s actually going on and make our own decisions. Take a look at the monthly chart of the S&P 500 below:
What we see here is that since 1997, these 6-month ‘Sell in May’ periods have been split about 50/50 between gains and losses. The sizes of those gains and losses have varied quite a bit, as well – sizes that would definitely have had an impact on an investor’s portfolio, especially over the long run. For the past 20 years, it appears the gurus on both sides of the debate have been right/wrong about half the time. No one should make investment decisions based on a coin flip, but that’s basically what a 50/50 chance is.
However, if we take a closer look at the chart with our trend following goggles on, we notice something: ‘Sell in May’ seems to work better when the overall market is in a major downtrend and not so well during major uptrends. Eureka! Trend following works again!!
We can see there were a couple of those 6-month periods that had counter-trend moves, but for the most part investors who kept their portfolios aligned with the current major market trend didn’t have to give the ‘Sell in May’ debate a second thought. They were in the correct position ahead of time.
What will 2016’s ‘Sell in May’ period bring us? Hey, it’s a coin toss! But everybody’s got an opinion…
NEWS YOU CAN USE
"The Inventor of the 401(k) Says He Created a 'Monster'" from MarketWatch
"AIG Seeks to Redeem $4.1 Billion
from Hedge Funds After Loss"
"Chief Investment Officer of Philly Pension Fund Resigns" from The Inquirer
"First Trust ISE-Reserve Natural Gas Fund
Announces Reverse Share Split"
from Business Wire
"New Rules Force Financial Advisers to
Do What's Best for Their Clients"
from USA Today
VIEWS YOU CAN USE
"The Laziest Investing Argument
in the World Gets Blown Up"
from Business Insider
"Tools, Tips Help Older Investors Beat Financial Scams" from USA Today
"What Stops Women from Investing?"
from The Economic Times
"Morningstar: The More You Pay,
the Less You Get from Funds"
from Investment News
"Don't Buy Mutual Funds,
Buy the Companies that Sell Them"
Summer Reading List
Whether you're cooling it in a big hammock or stretched out on a beach, there's always time to get smarter about your investments!
Here are 4 excellent books to get you going!!
>>>>> And just so you know:
Clicking on these book images takes you to Amazon.com via our affiliate link. You won't pay a penny more for what you buy, but we do get a few coins for sending you there - and that helps us cover the costs of keeping our website running free!
Here are a couple of very simple retirement calculators courtesy of our friends over at Calculator Pro.
Here are the figures we used:
> Required Annual Income: we put in what we're making now (we don't buy into that "plan to spend 70% of your working income in retirement" idea!)
> Years until Retirement: we shot for age 65, but who really knows, right?
> Years after Retirement: we sure hope to have 20 good years of doing what we want to do!
> Annual Inflation: we used 3.5% (maybe go a tad higher to be safe?)
> Annual Return on Balance: we used 7% (maybe go a tad lower to be safe?)