Should you sell your stock market investments in May?

Published by on 20 April 2016.
Last updated on 03 May 2016

What does “Sell in May” mean?

The saying dates back to old England, when the stockbrokers would go on summer vacation in May and not return until September. St Leger is the day in September when the horse race of that name is run in Doncaster.

The St Leger was first run in 1776, making it the oldest classic in the world and is the traditional end of the season. Its use in this investing saying is shorthand for being out of the market during the less profitable summer months and fully invested in the winter.

You sell your investments on 1 May and don’t buy back into the stock market until St Leger’s day, this year on Wednesday 7 September. However, some investors prefer not to come back to the stock market until Halloween.

Is there any evidence that Sell in May works?

Adrian Lowcock, head of investing at AXA Wealth has crunched the numbers on the FTSE 100 index of the largest companies listed on the London Stock Exchange, and the FTSE All Share index, which represents 98% of the UK stock market, from 1986 to 2014. He found that from 1986 to 2014 the FTSE 100 returned a total of -16.5%, excluding dividends, over the 5 summer months, whilst the same index delivered a return of 191.5% during the 7 winter months.

He says: “Investors have lost an average of 0.55% each year by remaining invested in the FTSE 100 from May to September excluding dividends.”

The Sell in May adage also appears to hold true for the FTSE All Share. In the summer months the FTSE All Share fell -14.8%, an average annual loss of -0.49%, whilst in the winter months the same index rose 209.11%.

He says: “The underlying indices tend to fall over the summer months. However, investors rarely buy just the index and will get the benefit from dividends. Add dividends back in and the benefits of staying invested in the market outweigh the reasons to sell.”

A dividend is a sum of money paid regularly (typically annually) by a company to its shareholders out of its profits (or reserves).

Mr Lowcock’s research found the summer period including dividends ended up negative only 38% of the times (11 out of 29 since 1986).

We also asked Ben Yearsley, investment director at Wealth Club, to take a look at the evidence. He looked at the FTSE 100 and FTSE All Share indices on a total return basis including dividends over the period from 1 May to 7 September over the past twenty years. He found that there have been 10 up and 10 down years, with slightly bigger falls than rises. However, there’s not much in it.

Performance of UK stock market over summer months from 1 May to 7 September

Index FTSE 100 FTSE All Share
2015 -11.7 -9.9
2014 2.2 2
2013 3.1 3.9
2012 1.4 1.8
2011 -10.9 -11.2
2010 -1.2 -1.2
2009 18.3 18.5
2008 -12.5 -12.1
2007 -2.2 -2.9
2006 -1.3 -1.5
2005 1.3. 13.8
2004 3 2.5
2003 11.2 14.3
2002 -18.9 -19.4
2001 -13.6 -12.9
2000 6.6 7.9
1999 -2.8 -0.9
1998 -10.2 -11.7
1997 13.5 10.9
1996 4.1 2.4

Source: Ben Yearsley using FE Analytics on 18 April 2016. Table shows total return basis including dividends.

Looking at 30 years of data for the FTSE All Share Index (including dividends reinvested), research from Tilney Bestinvest reveals that during the period between 1 May and the second week of September, the FTSE All Share Index has delivered positive returns in 19 out of the past 30 years, meaning 66% of the time investors would have made positive returns by staying invested over the summer. This compares to markets rising 79% of the time across the full calendar years over this 30 year period.

It is also true that the summer months have seen seven steep sell-offs over the last 30 years, these being 1992 (-11.6%), 1998 (-12.6%), 2001 (-18.4%), 2002 (-21.2%) , 2008 (-13.0%), 2011 (-10.9%) and 2015 (-9.6%). 

Yet despite this, systematically taking your money out of the markets each year between May and mid-September would have actually reduced an investor’s average annual return to 9.57% compared to 10.73% for those who stayed invested.

Jason Hollands, Managing Director at Tilney Bestinvest, said:  “Long gone are the days of the City professional packing up shop for the long summer days to enjoy a summer of sports events. Indeed, accepting corporate hospitality to such events is now frowned upon.

“These days, if a City professional is off on summer holiday, they’re almost sure to be forever checking news from the markets on a mobile phone or tablet, as information is now incredibly accessible and the boundaries between working hours and personal time have eroded. Therefore when putting seasonality theories such as ‘Sell in May’ to the test, it is probably more relevant to only consider data since the 'Big Bang' deregulation of the City in 1986 rather than longer periods when the London markets operated as a gentleman’s club. And over this 30-year period, there is not a convincing case that it makes sense to generally exit the market between May and mid-September and that’s without factoring in the impact of trading costs or potentially crystallising capital gains tax liabilities.

“While true believers in this Old Wives tale can point to the some notable summer sell-offs, selective memory means they too often ignore the soaring summers of 1987, 1989, 1995, 2003, 2005, 2009 when the markets posted double digit returns.”

Should I sell in May 2016?

There’s some disagreement here. Mr Lowcock says: “Whilst on the surface it looks like selling in May could be successfully employed by a sophisticated investor, this is a case of hindsight is a wonderful thing. It is very difficult to pick the time to sell and when to buy back in as our confidence ebbs and wanes.” Mr Yearsley says: “I wouldn’t bother selling in May. It’s trying to be too clever.”


However, this year UK investors have the added complication of Brexit. Just as investment bankers head for the beach, the UK will go to the polls to decide whether stay in Europe.

The International Monetary Fund has said a British vote to leave the EU risks causing severe economic and political damage to Europe and could pose a threat to the global economy.

Moneywise columnist Darius McDermott has been looking into how the EU referendum could affect your investments.

Rebecca O’Keefe, head of investment at Interactive Investor says: “We have seen enormous volatility in global equity markets over the past six months and it is very difficult to predict what might happen over the summer. My concern is that the market is being lulled into a false sense of security and the risks appear to be more heavily weighted towards the downside. Markets are typically more volatile, with weaker sentiment and less liquidity over the summer, so selling in May 2016 may prove prudent.”

Any other tips?

Mr Lowcock says: “Investors face a lot of head winds and a tough summer ahead.  In this environment it is good to be well prepared. My two tips would be: “One, be ready to invest. Hold a bit of cash aside ready to invest on any market weakness so you can best benefit from a summer slump.

“Two, protect your portfolio. If the market does sell-off you need to protect your portfolio and having defensive assets in place such as targeted absolute return funds in the portfolio will reduce the volatility during weak markets.”

Mr Yearsley says: “There are two things to consider: stock markets and currency. “If we leave the EU a big collapse in sterling will boost your overseas investments. If we stay the UK stock market will probably be fine but sterling will bounce and your overseas assets will drop in value. Either way you’ll have one offsetting the other.

“If you have a diversified global equity portfolio it’s best to just leave it. If you have a UK equity portfolio then the outcome is binary. A desirable portfolio would be half in UK equities and half overseas. However, it’s expensive to buy overseas equities now because there’s been a reasonably big fall in sterling.”

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