Experts dismiss adage: 'Sell in May and go away until St Leger Day'

1 May 2018
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Sell in May and go away until St Leger Day is a common investment adage, but it may not be one worth following.

The saying is based on the belief that investment returns are typically less impressive in the summer months when, historically, much of the City shuts up shop. 

Investors are advised to take their money out of the stock market in May and stay away until St Leger Day, a date in September linked to a famous horse meet of the same name, which starts this year on 12 September. 

But Moira O’Neill, head of personal finance at Interactive Investor, Moneywise's parent company, warns that investors should think twice before taking the old adage too seriously. “The market is a very different place to the days of old – now the City never sleeps,” she says. 

Analysis from investment group Fidelity shows that investors tempted to heed the old proverb may be missing out. 

Its figures show investors who kept their money in the market between May and September would have achieved positive returns in 18 of the past 30 years. 

If you had invested £10,000 in the FTSE All Share 30 years ago and left your money in the stock market the entire time, you would now have an incredible £128,033.

Those who had gone to the hassle of selling their investments in May each year and investing again in September would have £126,950. 

Those who sold in May 1989 would have missed out on hefty returns of 12.5% over the summer months, and on returns of 17.8% between May and September in 2009. But they also would have avoided a loss of 17.6% over the summer in 2002 and a 10% loss in 2011. 

Tom Stevenson, investment director at Fidelity, says: “While many stock market adages have a ring of truth to them, they should invariably be taken with a pinch of salt and the St Leger Day saying is no different.

“Predicting the best time to invest or sell out of the stock market really is a fool’s errand and getting it wrong can be a costly gamble, which can seriously compromise your returns.” 

While the overall returns of the two approaches are not dissimilar, investors should not forget to factor in the costs involved in buying and selling investments, which eat into your returns

Research by Tilney Bestinvest also suggests there are no firm conclusions. Its analysis of 32 summers of returns shows the FTSE All Share has risen and fallen an equal number of times over that period, with seven “brutal” sell-offs and six “soaring summers”. 

Jason Hollands, managing director at Bestinvest, says: “While market returns in the summer months can be unpredictable, systematically exiting the market during this period does not convincingly stack up as a strategy. It could also clock up transaction costs and capital gains tax liabilities.” 

He says another good reason to keep hold of your investments through the summer is that this is often when companies pay out their dividends, so investors who sell could miss out on a vital income boost. 

However, Ms O’Neill adds: “No matter what the season, every investor should have a spring-clean once or twice a year with a view to re-balancing their portfolio, by selling some of the funds that have done well and buying some that haven’t – it might sound counter-intuitive, but research shows this strategy works over the long term.”

Mr Stevenson adds: “If there is one stock market adage that you should consider following it is “time in the market matters more than timing the market” – so stay invested and remain focused on your long-term investment goals.” 

 

 

Comments

In reply to by anonymous_stub (not verified)

This has nothing at all to do with investment managers wanting to forestall any movement by individuals to take back control of their money, oh no. Past performance is no guide to the future, is always the caveat clause cited by investment managers - in the past they have done nicely out of extracting fees from portfolios, but perish the thought of investment managers becoming an irrelevance....

In reply to by anonymous_stub (not verified)

As long as the market does not crash as so many pundits forecast, and make you wish you had sold. But as everyone knows, selling on the way down is a common fault with so many investors. If it happens, just wait for the recovery!

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