It feels like almost every week there’s a new piece of investment advice floating around. Investors can be caught up in fads just as easily as any other group of people. Sometimes in life, however, it’s the old strategies that work the best, and that’s just as true when you’re playing the stock market as anywhere else. If you’re looking to get rich, then it’s worth stress testing this advice now and again to see if it offers some useful input into your investment strategy.
What’s the piece of advice that we’re looking at this time? Actually, it’s pretty simple: “sell in May and go away”.
At the end of May, at least according to this theory, the weather begins to heat up and the world starts to move gradually into summer mode. Whatever you do, you’ll be familiar with the desire to get away from the office a little early and spend more of the day outside during the summer. You’ll also know that plenty of people go away for a week or two during the long summer months. It’s ridiculous to ignore this advice when you’re putting together investment strategies, and that’s where the maxim comes from. Whilst there may be some truth in the claim that market activity is generally quiet over the summer, there is less evidence that this causes the value of stocks to fall. Long-term investors should probably be fairly comfortable about riding out this period and seeing it as a part of the natural ebb and flow of the market that comes with any investing strategy over a number of months and years.
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If you’re pursuing a long-term investment strategy then it may be tempting not to get too involved and simply hold on to your investments over the summer period. Just because the volume of trade drops, doesn’t mean that the value of your investment will drop. It’s certainly worth keeping a close eye on your investment, since the reactions to market news and other movements can be blown out of proportion when the market is generally quiet but there’s no obvious need to pull out of the market entirely.
In fact, if you’d like to take a little break from the daily grind of investments then the summer is definitely the time to do this. The generally lower volume that’s at play will generally play in your favour since you are less likely to face major market movements than at other times of the year. Company results won’t be coming flooding in every day of the week and major economic announcements from Central Banks and other government agencies will generally be thin on the ground.
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Generally, while the maxim about the market being quieter over the course of the summer certainly has some truth to it, there’s little evidence that this means you should actually get out of the market. Certainly, if you’re only looking to make a short-term return then there is an argument for looking elsewhere. On the other hand, investors who are looking to make long-term and strategic decisions about their investment portfolio should be comfortable about staying in the market over the course of the Summer. After all, if the majority of investment professionals whose entire careers depend on watching the market like a hawk are happy to take a little time off over the summer, then that’s probably a good sign that you should feel fairly comfortable about doing the same thing.
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