May might be behind us, but there are those looking at the after-effects of last month and wondering if “sell in May and go away” might still be a good option. The stock market in Canada and around the world continues to fluctuate. And some believe this should continue happening all the way until the fall, at least.
So, is this great advice? Or are there perhaps other points to consider?
The theory
The “sell in May and go away” theory is where investors, obviously, sell their shares in May. However, they then go on to refrain from investing until October. The idea is rooted in historical stock market performance patterns.
For instance, stock markets have shown weaker performance during the summer months (May through October) compared to the winter months (November through April). This seasonal effect has been observed in various markets, making the strategy somewhat compelling based on past data.
What’s more, during the summer, trading volumes tend to be lower. Many investors and traders go on vacation, leading to reduced market activity. Lower volumes can result in higher volatility, as smaller trades can have a more significant impact on prices. So, should you be selling your stocks?
Not so fast
What this really comes down to is investors trying to time the market. Timing the market is extremely challenging and risky. Predicting the best times to sell and buy back in can lead to significant missed opportunities and potential losses. The market can be unpredictable, and good performance can occur during any period, including the summer months.
Furthermore, by selling in May, investors might miss out on potential gains during the summer months. There have been numerous instances where the market has performed well during the May-to-October period, and missing these gains can be detrimental to an investor’s portfolio.
Therefore, for long-term investors, staying invested through market fluctuations is generally more beneficial than trying to time the market. Historically, the market tends to rise over the long term, and short-term fluctuations are often less significant in the context of a long-term investment strategy.
Consider this instead
If you’re worried, then perhaps consider looking for a solid exchange-traded fund (ETF). And one that would offer you dividends would be even better. A diversified option investors may want to consider is the Vanguard FTSE Global All Cap ex Canada Index ETF (TSX:VXC).
This allows you access to market caps and countries around the world, providing exposure to a global portfolio with the click of a button. What’s more, shares are already up 12% year to date, and it holds a 1.6% dividend yield as of writing.
So rather than risk losing out on returns and trying to time the market, consider simply finding a better long-term option. By investing in this ETF, you can gain access to an entire portfolio. One that you can hold safely for years, if not decades, to come – all while receiving a solid dividend while you earn.
