“Sell in May and go away” is an adage based on the historical underperformance of some stocks in the six-month period beginning in May and ending in October. Investors subscribing to the sell-in-May-and-go-away strategy typically divest their equity holdings in the late spring and invest again in mid-autumn, based on the belief that low trading volumes and the lack of market participants in the summer months can result in a somewhat riskier or lackluster market period. If you’re considering this or a similar strategy to reduce your exposure to market losses, below are three good reasons to reconsider.
Reason #1: The benefits may be less than you hoped.
According to a recent article in Barron’s, over the past 30 years, an investor following the “Sell in May” concept only beat those who remained invested by 0.7% per year on average. And that return doesn’t include tax and trading costs from constantly selling and buying back your portfolio, which could result in an even lower or negative return.