Tuesday, May 5, 2015

Sell in May? Don't Bother

The old adage "sell in May and go away" has just come into effect - signifying that the worst months historically for the stock market have been May through October. But like most old adages, this one is a little overblown. The summer months are the worst months for stocks, but they won't kill your portfolio.

The advantage is real: From 1929 through the end of 2014, the S&P 500 index returned an average of 7.1 percent from November through April but just 3.9 percent from May through October, according to Morningstar. It's even more pronounced for small caps, which have returned 10.5 percent in the winter months since 2002, but just 2.0 percent in the summer.

But it's hardly worth dealing with. According to MarketWatch, if you had simply employed a buy-and-hold strategy on the broad-based Wilshire 5000 index since June 2002, you would have earned an average annual return of 7.7 percent. If you had sold all your holdings each May, bought T-bills, then bought back the stocks at the end of October, you would have bumped that return all the way up to 7.9 percent.

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