Should You Take a “Summer Vacation” from the Stock Market?

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By Bennett Whitlock, CRPC®

Private Wealth Advisor

“Sell in May and go away” is an old saying among some stock investors. It means that as the weather warms up, investors and traders should pay less attention to the stock market, which some believe historically performs best between November and April. They liquidate investments in May and invest again around Halloween.

It sounds simple, but does a “summer vacation” from the stock market make sense as part of your investment strategy? Not necessarily. Here are five important reasons the “Sell in May and go away” concept may not be the best strategy:

1. It is a strategy built around “timing” the market. This is a tactic that can backfire. The historical average does not indicate that stocks generate negative returns from May to October. In reality, there have been years when stocks generated strong performance during that period.

2. Not all investments perform the same. Particular stocks or market sectors may perform better than the market as a whole during May through October. Anytime you sell an investment that was intended to be a long-term holding, you take a risk that you’ll miss out on some positive performance.

3. The costs of selling may outweigh the benefits. Moving money into and out of investments generally costs money. There may be trading costs and taxes on capital gains.

4. You won’t collect dividends. Dividend-paying stocks generate returns that aren’t affected by the market’s ups and downs. If stocks or funds you own pay dividends, you won’t collect them once you have sold.

5. Discipline is required. If you sell in May, will you truly purchase back those stocks by the end of October? What if they became more expensive or the market suffered a major downturn just before November? The biggest market crashes in history have occurred in October.

A better approach may be to continue investing regularly and consistently saving and keeping your money invested to try to accumulate wealth over time. If you have a longterm investment plan, stick with it.

Bennett Whitlock, CRPC®, is a private wealth advisor and managing director with Whitlock Wealth Management, a franchise of Ameriprise Financial Services, Inc. Learn more at WhitlockWealth.com or call 703-492-7732.

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