Is ‘Sell in May and Go Away’ Terrible Investing Advice?

The market can be volatile in summer months, so should you get out now and wait until things cool down by the fall?

| More on:
A small flower grows out of a concrete crack.

Source: Getty Images

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.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Amy Legate-Wolfe has positions in the Vanguard FTSE Global All Cap Ex Canada Index ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

calculate and analyze stock
Dividend Stocks

4 Fabulous Dividend Stocks to Buy in July

Are you looking for long-term income? These four dividend stocks should not only provide you with value in July but…

Read more »

financial freedom sign
Dividend Stocks

5 Steps to Financial Freedom for Canadian Millennials

Follow these steps and nothing can stop Canadian millennials from achieving their early retirement dreams.

Read more »

Investor wonders if it's safe to buy stocks now
Dividend Stocks

We’re Only Getting Older: A Top TSX Stock That Benefits From an Aging Population

For a bet on the aging population, consider this small-cap stock with growth potential.

Read more »

Growing plant shoots on coins
Dividend Stocks

Yield Today, Growth Tomorrow: 3 Stocks to Keep Building Your Wealth

For investors seeking yield today and growth tomorrow, these top Canadian dividend stocks are certainly worth considering right now.

Read more »

Payday ringed on a calendar
Dividend Stocks

This 10.72% Dividend Stock Pays Cash Every Month

This dividend stock remains a consistent, defensive dividend producer that will give up over 10% in income each and every…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

TFSA Investors: 2 Standout Domestic Stocks With 7% Yields

These top dividend-growth stocks look oversold.

Read more »

Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Despite their recent declines, the long-term growth outlook of these two top dividend stocks remains strong, which could help their…

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

Growth Stocks vs. Value Stocks: Which Should You Choose?

There are growth stocks and value stocks, but there are also growing value stocks that fit into both sides of…

Read more »