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Should your retirement portfolio take the summer off?

Published on Marketwatch.com http://www.marketwatch.com/story/should-your-retirement-portfolio-take-the-summer-off-2014-06-05

“Sell in May and go away” is an old stock market adage with a long history. You may be wondering what it means and how it began. The original saying was, “Sell in May and go away, do not return until St. Leger’s Day.” It started in England, when the stockbrokers would leave for summer vacation in May and wouldn’t get back to work until after the final horse race of the season which was run on the second Saturday in September (St. Leger’s Day). The stock market was pretty slow over the summer months in those days.

Some market strategists advocate an investment strategy based on the old sell in May saying: They suggest buying the market on November 1st of each year, selling out on May 1st, and sitting in cash throughout the summer months. A study by Securities Research Company of the 10 years that ran from 2001-2010 found that the price return on a buy-and-hold strategy on the S&P 500 would have averaged 12.7% annually over those 10 years, while the “sell in May” switching strategy would have averaged 23.6% a year.

There has been a tremendous amount of research done on the seasonality of stock market returns and the data is readily available today. If we take a look back we’ll find that some months of the year have historically been better than others. A recent article in Barron’s by Mark Hulbert studied the Dow Jones Industrial Average going all the way back to its inception in 1896. The average winter return, defined as November 1st through April 30th, produced 5.4%; the average return for the summer months, defined as May through October, was 2.0%. The difference is 3.4 percentage points, and that is considered to be statistically significant at the 95% confidence level. Note that even though the winter months were found to have a much higher rate of return, the summer months still had a positive outcome.

If we study the S&P 500 and go back to 1950, the best time of the year has been the winter months, especially the November through January period. The best month of the year historically is December, with an average return of +1.62%. In the last 64 years there have been 49 Decembers with a positive return and just 15 with a negative result. The worst month of the year has been September, with a return of -0.64%; 29 Septembers have posted gains and 35 have had losses. June has also been an interesting month; the average return has been slightly negative at -0.10%, but we’ve seen an equal number of positive and negative months at 32 each, essentially a coin toss.

Another interesting analysis on the seasonality of the markets was done by researchers at New Zealand’s Massey University. They studied the U.S. market and found that certain industries had relatively even performance year round, primarily consumer and food stocks.

Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information on his money management service can be found at his blog at www.sellacalloption.com or by calling 775-657-8065. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.

Statistics and other information have been compiled from various sources. Universal Value Advisors believes the facts and information to be accurate and credible but makes no guarantee to the complete accuracy of this information. A more detailed description of the company, its management and practices is contained in its “Firm Brochure” (Form ADV, Part 2A) which may be obtained by contacting UVA at: 9222 Prototype Dr., Reno, NV  89521.  Ph: (775) 284-7778.


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