Should I really sell stocks in May and go away like that old Wall Street saying suggests?
No! One of the worst things that an investor can do is try and time the market. Staying fully invested makes much more sense.
Yes, the market historically does better in the fourth quarter. Returns have tended to be solid from October through December as investors anticipate strong sales and profits for Corporate America during the holiday months.
And, sure, this May is off to a rocky start because of US-China trade tension. But it's a myth that stocks will definitely fall during the supposedly sleepy summer months as traders head to the beach.
Earnings, trade and the Fed matter more than the calendar
During the past three years, the S&P 500 has actually gone up between the beginning of May and end of September, thanks in large part to solid corporate earnings and continued economic growth.
"Blindly going to cash and waiting...to re-invest hasn't been the most profitable strategy lately," said LPL Financial senior market strategist Ryan Detrick in a recent report.
Investors can't take the summer off — especially this year when the United States and China might finally reach a trade deal and the Federal Reserve may drop more hints about a future rate cut later this year, said Fabiana Fedeli, global head of fundamental equities at Robeco.
Both of those events would probably push the market higher, not lower.
"I have a feeling that at a time where there is so much news flow, selling in May and going away is probably not the smartest thing to do," Fedelli said, adding that her firm's clients have been quite active during the summer months for the past few years.
The current market volatility still hasn't hurt buy-and-hold investors all that much.
The Dow is still up more than 10% this year while the S&P 500 has gained about 15%. The Nasdaq is up nearly 20%. And all three indexes are not too far from all-time peaks.
"Record highs tend to be supportive of, rather than detrimental to, near-term returns," said Mark Haefele, chief investment officer with UBS Global Wealth Management, in a recent report.
"A sell-in-May strategy lowers long-term returns. We believe it's important to focus on time in the market, rather than timing the market," Haefele added.
That doesn't mean that stocks are definitely going to head higher over the next few months.
Steve Rhodes, editor of the Mastering Probability investing newsletter, says investors should be "on guard" this summer for a possible sell-off.
But it's not because of seasonal trading patterns. It's because there are worries about a global slowdown.
"Look at the data — not the calendar," he said.
What's the best way to invest for the long haul? Are bonds better than stocks? Do you have questions about how to build wealth? Ask us here and you may be included in a future column.
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