Is it time once again for stock investors to “Sell in May and go away”?
One of the most commonly heard adages in investing comes up for discussion every year at this time. It holds that an investor can produce reliable returns at reduced risk by investing in the Dow Jones industrial average from Nov. 1 until May 1 every year and then switching into bonds for the other six months.
Although not everyone believes in this rule of thumb, it’s hard to ignore its track record.
The five best-performing months for the Dow since 1950 are, in order, November, December, March, April and January. In other words, not a single month from May through October is a historical top performer.
The statistical payoff has been similar for the Standard & Poor’s 500 index. Not counting dividends, the S&P has posted an average gain of 6.8 percent from May through October since 1945. The gain for all other months: 4.1 percent.
REASONS IT MAY WORK
The six-month period starting in May includes the vacation-dominated stretch from Memorial Day to Labor Day that features less market activity, weighing on returns. And the rest of the year benefits from year-end bonuses, tax refunds and pension-fund contributions that translate to increased buying.
WHAT ABOUT THIS YEAR?
Many pundits see the stock market as likely to rise modestly for the rest of the year. Others anticipate a correction in light of the fact the S&P has doubled since March 2009 and is up 7 percent in 2011 alone. A key sign to watch for will be any sign of the economic recovery beginning to falter.
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