What's Up With "Sell in May and Go Away"?

With spring in full swing, you may be hearing the old saying "Sell in May and Go Away." But what does it mean? Should you be selling off your worldly possessions at a yard sale in May and then taking off to spend the summer at a cabin by the lake? It actually refers to selling your stock-market investments in the spring and then jumping back into equities around Halloween when markets are presumed to be more profitable. For this reason, "Sell in May" is also known as the "Halloween Indicator."

Before going any further, consider the following:

• Market-timing strategies are inherently risky — and can go against the grain of those who strive for diversified, balanced portfolios.
• Frequent trading can generate taxable outcomes: Larger transaction costs, in the form of commissions and taxes, have the potential to outweigh any possible gains from market timing.
• As with any investing strategy, research can help determine if an investing move is right for you. Markets Overview page offers breaking market news, stock exchange updates and announcements to help keep you informed.

So, what's the history?

The original saying is, "Sell in May and go away; Don't come back 'til St. Leger Day." It originates in Britain when the financial district structured business around sporting and social events. St. Leger Day is the final horse race in the British Triple Crown, and takes place in September to mark the end of the summer social season. The idea behind the old "Sell in May" adage was to sell stocks before the summer holidays kicked into gear, when businesses would traditionally slow down.

Theories abound about whether it's best to "Sell in May" or "Stay and Play." Remember that no one has a crystal ball. It's a personal choice for investors, based on their own risk-comfort levels and goals. Original observations about the theory were that stocks typically do much better between November and April than they do from May to October. There are historical stats showing the same. A 2002 research study of the effect, one of the first deep dives into the theory, found that 37 international stock markets showed an average 10-per-cent-higher return in the winter months. A more recent study in 2013 found that the "Sell in May" effect is pervasive in financial markets, and researchers reiterated that they found stock returns to be about 10 percentage points higher for November to April periods. Critics, however, point out the age-old axiom that past performance is no guarantee of future results.  

The information provided in this article is for general purposes only and does not constitute personal financial advice. Please consult with your own professional advisor to discuss your specific financial and tax needs.